‘My husband and I have 8 kids’: We have $200,000 in a high-yield savings account at 3.75%. Are we beating inflation?
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Dear Quentin,
My husband and I currently have $200,000 in an emergency fund, and I have it in a high-yield savings account at our credit union. I like this very much because I have a personal relationship with our bank staff, which is helpful when we have a unique need.
I like how easy it is for me to transfer funds from our other accounts into our HYSA. The downside is that the APY is 3.75%, which seems a little bit lower than other accounts I see advertised, though those seem to mostly be available through online banks.
I am very new to learning more about financial management. My husband does all our finances beyond the discretionary-spending account and our emergency fund. My husband and I have eight kids, and rely solely on his income to support our family.
As you can see, I have aimed high for our emergency fund. If something were to happen to my husband or his job, we could access money pretty quickly. For that reason I am leery about doing something that would lock up those funds or come with restrictions.
Where is the best place to put our emergency fund so it keeps up with inflation but is readily available if we need to access it?
Wife, Mother & Saver
“Never discount the contribution you have to offer.”
MarketWatch illustrationDear Wife, Mother & Saver,
You’re beating inflation by the skin of your teeth.
Given that you are raising eight children, you are more than qualified and entitled to be part of your household’s saving and investment decisions. That should be a 50/50 proposition between you and your husband. You may need to express your own joys or concerns about your finances. Never discount the contribution you have to offer.
I agree with you on two counts: First, it’s great to have a personal relationship with your local bank or credit union, and second, your interest rate is relatively low compared with the average annual percentage yield on high-yield savings accounts. You could, if you looked around, get as much as 5.30%.
Don’t be put off by online banks. Just make sure the institution has insurance through the National Credit Union Administration or the Federal Deposit Insurance Corp.Both are U.S. government agencies that protect deposits up to $250,000 per depositor. So if you had $500,000, you would want to deposit half of that either in accounts in different ownership categories or in different banks.
FDIC insurance covers most deposit accounts, although it does not cover investment accounts. Credit-union accounts are covered by the NCUA.
Establish long-term goals
Joseph J. Lebel III, president and chief operating officer at OceanFirst Bank, recommends that you think about your long-term savings and investment goals. Inflation, like income tax, can rob you of money, he adds, whether it’s in a 401(k), an exchange-traded fund, mutual fund or money-market fund.
The latter invest in short-term securities issued by governments and corporations; some of the most popular funds include Vanguard Federal Money Market Fund, Schwab Value Advantage Money Fund, JPMorgan Prime Money Market Fund and Fidelity Money Market Fund, and currently have annual percentage yield, or APY, of 5% or above.
“The good news is, consumers today have some interest rates that allow them to see a real return with very little risk in money funds or bank products such as CDs or high-yield accounts that are liquid, safe and easy to understand,” he says.
“Even with such a large family, $200,000 is a healthy emergency fund.”
With inflation at 3.4% in April — down from a recent peak of 9.1% in June 2022 — you may wish to consider shorter-duration bonds, mutual funds and exchange-traded funds with a maturity of less than five years, in addition to high-yield savings accounts and certificates of deposit (where you can get an APY of 5%).
Even with such a large family, $200,000 is a healthy emergency fund. Further down the line, you may want to look into Treasury inflation-protected securities, or TIPS, and keep diversification front and center. (You can currently get a return of 5.15% on a U.S. 1 Year Treasury Bill.)
Health savings accounts allow you to save money in a tax-advantaged account and withdraw it tax-free for qualified medical expenses. You can also use that cash to reduce your out-of-pocket medical expenses in retirement.
That is one way to build up a medical nest egg, depending on how much of the funds in the account you use during your or your husband’s working life. For 2024, individuals with a high-deductible health plan have an annual HSA contribution limit of $4,150. The HSA contribution limit for family coverage is $8,300.
Creating financial independence
The Roth IRA contribution limit for 2024 is $7,000 per person, with an additional $1,000 catch-up contribution for people who are 50 and older. Tax filers who are married and filing jointly must have a modified adjusted gross income under $240,000 in 2024.
Many women run their household’s finances: Some 59% of non-single women are in charge of making household financial decisions, up from 48% in 2023, and 31% make financial decisions with their partners, down from 37%, according to research from GoBankingRates.com.
But women still have a long way to go in corporate America. Just over 10% of CEOs of Fortune 500 companies are women. Women CEOs just crossed that 10% threshold last year, with a quarter of the 52 female CEOS taking over the reins at their companies last year.
Financial independence starts and ends not only with knowing where your money is being invested, but with having agency over where that money is invested. When it comes to finances, your husband may not necessarily be the smartest person in the room.
More columns from Quentin Fottrell:
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