Use fixed deposits for emergency fund and war chest. (With a section on OCBC 360, UOB ONE and CIMB savings a/c.)

In a few blog posts and comments, I have mentioned how I like to park emergency funds and a portion of my war chest in fixed deposits. 

Fixed deposits offer higher interest rates than savings accounts and are liquid enough to be considered near money.

I have been asked before how I go about doing it and although I am pretty sure I have mentioned it before in my blog, I am not sure if I have done it clearly. 

Anyway, I guess I shall try to do a better job in this blog post.





EMERGENCY FUNDS

For emergency funds, first, we have to determine how much we need to have in order to maintain the lifestyle we currently have in the event that our income stream disappears. 

Then, set aside this money. (For my thoughts on how to determine how much we should put aside, please see related post no. 1 at the end of the blog post.)

If we have determined that $50,000 is what we need in our emergency fund, then, look for the best fixed deposit deals out there. 





Check what are the minimum amounts required by the different banks to qualify for special interest rates. 

If the minimum amount required is $25,000, then, split the $50,000 into two portions. 

In the event of an emergency, we could opt to break only one fixed deposit while the other fixed deposit continues to earn higher interest, for example.

Also, as interest rates are expected to rise in future, try not to lock the money in a fixed deposit for longer than 12 months unless the offer is compelling. 

What is compelling? 

Well, interest rates are expected by some experts to go up by another 0.5% or 0.75% by end of next year. 

So, we could use that as a guide as to how much more a 24 months fixed deposit should pay. 

For sure, otherwise, I wouldn't go for 24 months or 36 months fixed deposits.

Don't restrict ourselves to what is being offered by the three local banks. 

Often, the foreign banks offer higher interest rates for fixed deposits. 

If we can get relatively attractive interest rates for a 6 months or 9 months placement at these banks, why not?





WAR CHEST

What about money in our war chest?

I believe I mentioned before how I use the concept of laddering with fixed deposits. 

This is especially pertinent for the money in my war chest. 

The basic idea is to have one or two fixed deposits maturing every other month or so. 

This is to ensure that I will have more funds available regularly, more funds from maturing fixed deposits that will add to my regular income, passive or not.

These are funds which I could use to invest in opportunities if they presented themselves. 

Otherwise, the funds and regular income, if any, go into a new fixed deposit or two.

For example, I had two fixed deposits which matured earlier this month. 

I had thought to keep the money close to me in case the stock market should continue its decline from August. 

As the stock market seems to be recovering nicely, I decided to lock away some of the money in two new fixed deposits last weekend, one maturing in April 2016 and another one in July 2016.

Right now, I have 7 fixed deposits and they are maturing in December 2015, April 2016 (2x), May 2016, June 2016, July 2016 and November 2016. 

The chance that I might have to prematurely terminate one or a few of these fixed deposits still exists, of course, but with laddering, staggering the maturity dates, I hope I wouldn't have to. 

I would like to have my cake and eat it too. Who doesn't?





OCBC 360, UOB ONE & CIMB

I hope I do not have to prematurely terminate any of my fixed deposits and the likelihood is reduced by the good size float I maintain in OCBC 360, UOB ONE and CIMB savings accounts, all of which offer higher interest rates for our savings without any lock up period.

However, these accounts only pay higher interest rates on savings provided that certain conditions are met. 

The amounts that could benefit from higher interest rates are also capped at $60K for OCBC 360 and $50K for UOB ONE.

For people who have more than $110K in savings or who are unable or unwilling to jump through hoops to get the higher interest rates, they might want to consider making good use of fixed deposits since CIMB only pays 0.8% in interest although their latest offer, the CIMB Fast Saver, offers 1% in interest for the first $50K in savings and 0.6% for anything above that.





I want to conclude by saying that for those of us who are less disciplined, even if we had $110K or less in savings, it would make sense to park our emergency fund (and even our war chest) in fixed deposits and not in OCBC 360 or UOB ONE. Why?

Well, after all, money in fixed deposits is slightly farther away compared to money in a savings account. Fixed deposits have locks.

Related posts:
1. How much should we have in emergency fund?
2. A special chest for emergency fund.
3. Getting paid more while waiting for opportunities.
4. UOB ONE or (new) OCBC 360?
(BOC's offer and updated OCBC 360 included.)
5. Standard Chartered Bank Bonus Saver?
(Added in July 2017.)

Goh Eng Yeow's anguish over his paper losses etc.

AK is an accredited kay poh and is always looking around. 

If we train ourselves to be more observant and to be more aware of our environment, we might learn something or find something which might benefit us now or in the future (either by participating or avoiding). As investors, it could be a good idea to be a kay poh.

Today, I visited a mall that I have a stake in through my investment in a listed company. I saw a good crowd in the late morning and that made me happy. Did I hear SPH?

I bought myself a curry puff at an Old Chang Kee kiosk and I had to queue. A lady in front of me bought all the fried chicken wings available despite a recent price increase of 10c per wing. I had to wait quite a while for my turn but I was happy.

I went to a bank to place a fixed deposit and I saw that they had an air purifier. So, I chose the seat that was the closest to the machine while waiting to be served. A bit noisier but the air was probably better. 

Alamak, AK is so kiasu and kiasi. Yah lor. Regular readers know that I have two air purifiers at home and that they are on almost 24 hours a day. It is always good to be prepared. Prevention is better than cure, isn't it?

This leads me to another idea about how we should always be prepared, whether we are investors or not. I have a friend who was looking high and low for an air purifier when the haze was at its worst recently. 

Despite my advice a few years ago that he should get an air purifier for his home, my friend didn't get one. He said the haze wasn't that bad. This time round, his parents developed respiratory issues due to the haze.

As investors, we probably get the best deals when the market is not interested. When everyone is interested in buying a stock, it is hard to get a good deal. Well, when everyone was interested in getting an air purifier, it became harder to get our hands on one. Same, same but different.

So, since the haze is an annual event, why not be prepared for it? If only price movement in the stock market is just as predictable.

As investors, we want to be prepared too. We want to make sure we have a war chest ready and that we have a shopping list ready. We don't know if a crash is going to happen but if it should happen, we should know what to do and make fast decisions. 

We must be prepared to seize opportunities or be prepared to lose out on opportunities.

While waiting for my turn at the bank, I read an article by Goh Eng Yeow in the papers and I would like to highlight these few paragraphs:

As investors for income, if we have invested in good companies, even badly timed entries should eventually turn out well. 

The fluctuations in prices should not affect us much if we have been eating bread with ink slowly (see related post no. 3).

So, how's your Sunday? 

Told you AK is kaypoh. ;p

Related posts:
1. Protect ourselves from the haze.
2. Tea with Solace: Common sense investing.
3. How to have peace of mind as investors?
4. Feeling depressed about paper losses?