No. of Recommendations: 3
I was speaking about the recommendation that people should have an emergency fund equal to 3 to 6 months salary.

Ok--I thought so. However, that is 3 to 6 months of living expenses, not salary.

My salary has a chunk going to various taxes, social security, 403(b), charities, savings, etc., and some is take-home. What comes home has some taken away for long-term investments. So what I end up using for daily expenses is about 30% of my salary, but that is, on the average, what I need for normal living expenses. When estimating what my emergency fund should have, I use that remaining 30% as my monthly living epxenses. If I were using gross salary, I would need over three times the savings.

MMA is a 'Money Market Acct.'?

Yes. I usually try to use the full name before slipping into abbreviations, but sometimes I forget.

MMA = Money Market (savings) Account. This is higher-intereset savings account at banks and thrifts (FDIC insured) and at credit unions (NCUA-insured at NCUA-member credit unions). Typically, whereas a standard savings account may pay around 2% APY, a money market account pays 4% to 5% APY. The rate can change without notice. Some financial institutions may offer up to 6% APY. Typical account restrictions are no more than 6 withdrawals a month, Of these, no more than 3 withdrawals a month to someone else's account or out of the institution.

MMF = Money Market (mutual) Fund. This is a mutual fund that invest in high-quality, short-term instruments, such as treasuries, jumbo CDs, bank notes, and commercial paper issued by corporations that have one of the top two credit ratings by a commercial credit rating organization. These are not insured, but because of investment restrictions imposed by the SEC, they are considered very safe. These are typically available at major brokerages and major fund families. It is normal for a MMF to pay about 5% to 6% but some may pay up to 7% APY. The rate can change without notice. Typical account restrictions include minimum amount one can invest ("deposit") and a minimum amount one can redeem ("withdraw"), but usually no limit on the number of deposits or withdrawals as long as the minimum dollar amounts are met.

CD = Certificate of Deposit. This can be issued by a bank, thrift, or credit union and are insured by the FDIC or NCUA. Typically there is a minimum amount of money needed to open a regular CD (often $1,000), or for a higher rate a "jumbo CD" would require a larger dollar commitment (e.g., $10,000). An institution will have several standard terms for the CD (e.g., 3-month, 6-month, 1-year, 2.5-year) and interest rate that is determined by whether it is a "regular CD" or a "jumbo CD" and the term, usually (not always) the longer the term the higher the interest rate, and "jumbo CD" having higher rate than the equivalent "regular CD". One is essentially committing to allow the institution to use that money for the term of the CD, and in exchange one usually gets a better interest rate (e.g., 6% to 7% for a 1-year regular CD, but sometimes one can find higer rates coming close to 8%.). Unlike a MMA or a MMF, the interest is usually guaranteed for the term of the CD. Some institutions won't allow early redemption of a CD, many will but will charge "substantial penalty" (typically the equivalent of 3 months interest on a 1-year CD, but I have seen as small as 30-days interest and as large as 1-year interest for redeeming a 1-year CD before maturity). Generally one cannot add to the CD or take principal out of the CD until maturity or redemption. In some cases one receives the interest when credited to the CD, in many cases the interest will be locked up in the CD and cannot be accessed until the CD matures or is redeemed, and in some cases one can withdraw interest or leave the interest to compound. In some cases, when a CD matures, the money will be refunded; in other cases one may have 10 days to decide whether or not to close the CD and, if no action is taken, the money will roll into a like-termed CD at the current interest rate. With so many variations, it is critical to read and understand the disclosures. (And I haven't even broached the "step-up CD" that allows one to add to the CD, nor callable CDs that allow the issuer to close the CD before maturity, usually because the going rates on CDs have declined. Some CDs aren't even insured, but that should be clearly disclosed.) If there was ever a case where one should "know what you are investing in", it comes to CDs because of all the options one may face.

It may not be pertinent to very many people here, but FDIC insurance and NCUA insurance has a limit: up to an aggregate of $100,000 in deposit accounts for a given signature (depositor) at an institution are insured. When figuring accounts, all deposit accounts for a given person at all branches and subsidaries for a given institution are taken together and the total, up to $100,000 are insured. Joint accounts are treated for insurance purposes as divided evenly among the owners of the account. A "deposit account" would include savings, checking, money market account, CDs. Retirement acounts (IRA, Roth IRA, etc.) are treated as if they were a separate signature and likewise are insured up to an aggregate of $100,000. Investment accounts, on the other hand, are not covered. (Since banks can now offer investments, it could be easy to confuse a deposit account, such as a MMA, for an investment account, such as a MMF.)
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