I am looking to open some short term savings accounts (Emergency fund, Car fund, etc) that I want to have liquidable, but I may not necessarily touch at all from month to month.

I am very worried about near term inflation as well. I think that in the next few years we will see, and have already seen (despite government number) a rapid rise in inflation.

Given these assumptions, what is the best way to save this money? Should I put it in CDs, Money Market? Are there any mutual funds or ETFs that protect against inflation, that anyone could recommend, or that Clark has recommended in the past?

  • In particular, I was thinking an emergency fund to be something like 1~2k and needs to be liquidable now. And a car fund to have something like 12~17k that I would use for purchasing new cars and for car repairs in the 3 to 5 year range. However, if I have a car repair I can use the emergency fund, for example, and replace the money from the car fund next month. So the car fund doesn't need to be immediately liquidable, just sooner than later. Mar 11, 2011 at 20:43

3 Answers 3


Emergency funds, car funds etc tend to have to be accessible quickly (which tends to rule out CDs unless you have the patience to work something like a monthly CD ladder, an I don't) and you'll want your principal protected. The latter pretty much rules out any proper investment (ETFs, mutual funds, stock market directly, Elbonian dirt futures etc). It's basically a risk-vs-return calculation. Not much risk, not much return but at least you're not losing from a nominal standpoint).

Another consideration is that you normally aren't able to decide freely if and when you want to pull money out of an emergency fund. If it is an emergency, waiting three weeks to see if the stock market goes up a little further isn't an option so you might end up having to take a hit that would be irrelevant if you were investing long term but might hurt badly because you're left with no choice.

I'd stick that sort of money into a money market account and either add to it if necessary to keep up with inflation or make sure that my non-retirement investments over and above these funds are performing well, as those will and should become a far bigger part of your wealth in the longer run.


Your goals are mutually exclusive.

You cannot both earn a return that will outpace inflation while simultaneously having zero-risk of losing money, at least not in the 2011 market. In 2008, a 5+% CD would have been a good choice.

Here's a potential compromise... sacrifice some immediate liquidity for more earnings. Say you had $10,000 saved:

  • $2,500 in deposit accounts (immediately liquid)
  • $2,500 in paper US Series I Savings Bonds (liquid at any US bank after 3-6 months)
  • $5,000 in a Short-Term Bond (like VFSTX) or ETF (like BSV)

In this scheme, you've diversified a little bit, have access to 50% of your money immediately (either through online transfer or bringing your bonds to a teller), have an implicit US government guarantee for 50% of your money and low risk for the rest, and get inflation protection for 75% of your money.


If you are concerned about inflation, here are a couple of "TIPS".

You can buy a mutual fund or ETF which adjusts for inflation.

Here is one link which you may find useful:


  • 2
    A mutual fund for short term savings? Really? Mar 10, 2011 at 22:25
  • @DJClayworth - If the horizon for the car fund is a couple years out, and the risk of inflation is scarier than the risk of loss of principal, some of the ultrashort bond funds may make sense. Probably not right now, but maybe sometimes -- current yield on a ultrashort is about 1.5%, not much more than you can get on a high yield savings (and not enough to pay for the extra risk). Not for an emergency fund, though -- if you had an "emergency" in October-December 2008 like so many of us did, you'd be screwed.
    – bstpierre
    Mar 10, 2011 at 23:58
  • @DJClayworth - the question specifically asked about mutual funds which hedge against inflation. The worst yearly return for VIPSX was -2.85% in 2008 which is not bad considering a 10 yr return of 6.5% finance.yahoo.com/q/pm?s=VIPSX Mar 11, 2011 at 0:58

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