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My employer offers a cash accumulation fund alongside my group life insurance, with monthly contributions of up to $300. The interest rate is above most regular savings accounts, and like all cash accumulation funds, it is tax deferred and pretty liquid.

With all that in mind, I'm wondering if there would be any drawbacks of using the cash accumulation fund as part of my emergency savings (or, after several years, maybe even be all of my emergency savings), since it is relatively safe and yields good returns.

  • Sounds like that's exactly what its there for. – Norm Apr 30 '18 at 19:27
  • How liquid is "pretty liquid"? If you can get the funds in a day or two at most (preferably earlier), and don't have to pay transaction costs then it should be just find for an emergency fund. – D Stanley Apr 30 '18 at 19:45
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    @RonJohn From what I can tell, tax on the interest is deferred until you withdraw. The contribution itself is after-tax. – D Stanley Apr 30 '18 at 19:47
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    Would you participate in the group life insurance anyways? In my experience group insurance is not the cheapest option unless you are in a high-risk group. – D Stanley Apr 30 '18 at 19:48
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    Would being fired, or quitting your job affect how quickly you can get at the fund? (I've no idea – just posing the question – but you wouldn't want extra hassle getting at the money at a time when you might need it most). – TripeHound May 1 '18 at 6:47
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Consider:

  • It's not FDIC insured.
  • Some states tax contributions.
  • There may be a delay (some companies have up to 6 months) to get at the funds.
  • You might have the sneaking suspicion someone's making money on this, and it's not you.
  • Isn't the last point irrelevant? Its either better or worse. Who cares if it also makes someone else money? If you didn't use every product that made someone else money you wouldn't really do much. – Matt May 1 '18 at 15:10
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That's fine, but consider other options. "Emergency savings" doesn't have to be in a savings account or in an stash of cash under your mattress. As long as you can get enough cash to cover an emergency scenario (many say ~6 months expenses) in a reasonable amount of time, you're doing fine.

Me, I keep some -- but not all -- of my emergency money in a short-term bond fund, for reasons similar to what you stated in your question. It has a better rate than a savings account, and I can get the cash in a matter of a day or two if needed.

If you have investments in a taxable account, I would argue that those count as emergency savings, too. Sure, you may have to sell at a loss, but the funds are available quickly, too. I think a lot of people keep a bit too much money tied up in a low-interest savings account when there are other options.

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