Dave Says: Creating an Emergency Fund in Bonds
These days it pays to be smart about money. That's why it's important to take this wise counsel from financial expert Dave Ramsey.
Dear Dave,
What do you think about the idea of putting your emergency fund into bonds?
Ryan
Dear Ryan,
I think that’s a really bad idea, and here’s why. Bond values and prices go down as long-term interest rates rise. Right now, long-term interest rates—a good example would be mortgage rates—are ticking up. They’ve moved up a quarter of a percent recently. So, as this happens, the value of bonds goes down. If these interest rates spiked, you could lose half your emergency fund.Never, ever put your emergency fund into things where risk and volatility are factors. An emergency fund isn’t an investment. It’s there to help protect things that are investments and your life. Keep it in something safe and simple, like a money market account where there’s no penalty for early withdrawal.We’re not looking to make money with an emergency fund, Ryan. It’s insurance. Just let it sit there, safe and sound, until it’s needed.
—Dave
* Dave Ramsey is America's trusted voice on money and business. He has authored five New York Times best-selling books: Financial Peace, More Than Enough, The Total Money Makeover, EntreLeadership and Smart Money Smart Kids. The Dave Ramsey Show is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.
