Dave Ramsey says: Emergency fund is protection rather than investment
Dec 11, 2018, 11:30 AM
Dear Dave,
One of my friends suggested that I put my emergency fund money into bonds. What do you think of this idea?
— Renee
Dear Renee,
Never put your emergency fund into things where volatility and risk are a concern.
An emergency fund isn’t an investment; it’s three to six months of expenses set aside to help protect you from the unexpected things life will throw at you.
My advice is to keep your emergency fund in something simple like a money market account, where there’s no penalty for early withdrawal and check writing privileges for easy access.
Bond values and prices go down when long-term interest rates rise.
Right now, long-term interest rates—a good example would be mortgage rates—are ticking up. So, as this happens, the value of bonds goes down.
We’re not looking to make money with an emergency fund, Renee. Think of it as a type of insurance.
Just let it sit there, safe and sound, until it’s needed!
— Dave
