Emergency Fund Distribution

[FIRE-Rookie]

Hey guys, as per the conventional advice, I have saved 6x times my monthly expenses as an emergency fund and now it is entirely in cash.

As I am taking more responsibility into my financial future, I found a lot of mixed opinions about the need to keep it all in cash. I have read about re-distributions to make it worth-while.

Luckily, I am in my early 30s and never had an situation where I had to touch these funds but I can't help but wondering if I am better off making some "pennies"$$$ or "yennies" ¥¥¥ on it while it is waiting by.

I am thinking of splitting the 6 months fund into:
(a)- 2 months fund in cash (Bank and home)
(b)- 2 months fund in high interest savings account.
(c)- 2 months fund in cash deposits (CD)

In the unfortunate event something happens, I can swiftly withdraw 2 months from option (a), I don't think there will be a situation where I will need funding for 6 months instantaneously! (or maybe I am too naive!)

For options (b) & (c), I do realize that there might be fees or penalties for liquidation but hoping that in due time, it would have made some money to make the keeping worthwhile.

For option (b), I am fully aware that the Japanese central bank rate is currently negative 0.1% so that keep options limited for Japanese accounts but has anyone opened an offshore high interest savings account with fast & minimal transfer fees before? If yes, did you use Yen or you had to switch to another currency? and what was the interest rate? (P.S. I am not American so please note that some financial institutions might not accept me!)

For option (c), I couldn't find much CDs in Japan but I found that Shinsei Bank have a "Time Deposit" account on USD deposits (convert from Yen to USD is required)
https://sre.shinseibank.com/Interestrat ... aspx#cate3
I am puzzled with the multitude of options, anyone tried these before, which one did you go for?
Currently considering a "Foreign Currency Time Deposit" with a maturity period of 6 months for 0.300% p.a (seemed like a good deal and I think it is automatically renews the contract if the funds are not withdrawn!)

Also SMBC Prestia offers "Time Deposits" with different degrees of maturities.
https://www.smbctb.co.jp/en/product/yen ... posit.html
I am also puzzled with the structure, maybe I am too simple minded but if someone have experience with them, can you just tell me in plain English what percentage I could get here?

Finally and most importantly, if you have other ideas to save the funds for months 3 to 6 in a highly liquid vehicle that generates a bit of cash then I will be really grateful. If you have experiences which you just had to touch upon 6 months of cash all at once then I would love to learn about that as well.

Thanks in advance!

[Beaglehound]

My local bank tried to sell me a foreign currency savings account like you speak of but as I understood it there was currency exposure which made it seem like little better than gambling on exchange rates, given the still paltry interest. Not sure if the product you link to is the same though.

Personally I wouldn’t worry too much about making cash out of emergency funds, having them readily available is more important, and you are only going to be making a pittance in the current environment. The peace of mind of knowing they are there if, for example, you have a sudden health emergency or need to go back to your country for an extended period, is worth more. At your age, maybe best to let the investments make the money.

[FIRE-Rookie]

My local bank tried to sell me a foreign currency savings account like you speak of but as I understood it there was currency exposure which made it seem like little better than gambling on exchange rates.

Given that the USD is 105 yen right now (October-2020), I think it could only go higher from here. Usually it is around 120 yen most of the year so I can potentially make some "yennies"!

Personally I wouldn’t worry too much about making cash out of emergency funds, having them readily available is more important, and you are only going to be making a pittance in the current environment. The peace of mind of knowing they are there if, for example, you have a sudden health emergency or need to go back to your country for an extended period, is worth more. At your age, maybe best to let the investments make the money.

I respect your opinion and I think I might be a bit of a risk taker here. Thing is cash will be available anyways.

Off-shore accounts usually send within a day or two.
CDs might take longer but the penalty basically costs me the interest, not the capital so meaning to say, cash will be available within 0-7 days in all (a), (b) & (c) cases.

On the upside, I make few "yennies", on the downside, I get to retake my capital without any increases.

[RetireJapan]

If your emergency fund is not liquid and non-volatile, it is not an emergency fund.

How much money you need to have on hand will be very different based on your circumstances, but try not to fool yourself

[adamu]

Here are some related threads (think I've said everything I have to say already )

Where to keep emergency fund..?
Where do you keep your emergency fund?
Emergency fund
Asset Allocation - Percentage in Cash?

[N00bster]

Given that the USD is 105 yen right now (October-2020), I think it could only go higher from here. Usually it is around 120 yen most of the year so I can potentially make some "yennies"!

You mean like it was between 2008 and 2014?

In the last 15 years USDJPY above 120 has been a rare and very ephemeral sight.

[captainspoke]

Given that the USD is 105 yen right now (October-2020), I think it could only go higher from here. Usually it is around 120 yen most of the year so I can potentially make some "yennies"!

You mean like it was between 2008 and 2014?

In the last 15 years USDJPY above 120 has been a rare and very ephemeral sight.

Yeah, even this past March, when things were going haywire, the rate only went to about ¥113/$1. And the following couple days it quickly returned to 108.


**

And a minor request: When someone says "it" will go higher/lower, since "it" might be taken to mean either dollars or yen, it would be nice to say things more clearly, like "the yen will weaken to 115", or "the yen will strengthen to 102". Similarly if stating it in dollars.

[TokyoWart]

I would also favor keeping the emergency fund in the currency in which you anticipate to have emergencies (the same way we try to match investments to future liabilities by duration). Foreign exchange trends are difficult for anyone to predict but for what it's worth I think "conventional wisdom" on the Yen/Dollar exchange rate is that Abenomics suppressed the value of the yen substantially. Also in conditions of economic growth the US dollar tends to fall against other currencies. Over the long term has fallen against the yen from the time the fixed 360 yen / $1 dollar rate was finally relaxed in the early 1970's.

[eagleyes]

I am thinking of splitting the 6 months fund into:
(a)- 2 months fund in cash (Bank and home)
(b)- 2 months fund in high interest savings account.
(c)- 2 months fund in cash deposits (CD)

I have been trying to find a solution to that question as well and could not find a valid answer. The high interest savings accounts or cash deposits are not immediately available and you have fees if you want to withdraw the money or transfer to your current bank account.
Therefore for the time being, I just keep it on a normal bank account without fees (I have set up one bank account where most of my revenues and expenses are being sent/withdrawn and one bank account with the emergency fund).

I try to minimize the balance on the revenue/expenses one. Anything in surplus goes for investment.

[FIRE-Rookie]

@RetireJapan, adamu, N00bster, captainspoke, TokyoWart, eagleyes
First of all, I do sincerely apologize for my super delayed reply.
I can make a hundred excuse but hopefully it would suffice to say that life got in the way but I am back on track for my financial future!

Secondly, I did read all of your replies and I do appreciate you schooling the Rookie. This is what I love about this Forum, straight talk, no BS! Love it!

If your emergency fund is not liquid and non-volatile, it is not an emergency fund.
How much money you need to have on hand will be very different based on your circumstances, but try not to fool yourself

Roger that, sir!

Here are some related threads (think I've said everything I have to say already )

Read it all, quite comprehensive. I should have probably did a deeper dive before asking the question but hey, the more the merrier for new members I guess so they can check the most "up-to-date" advice

You mean like it was between 2008 and 2014?
In the last 15 years USDJPY above 120 has been a rare and very ephemeral sight.

I should have borrow your nickname
Being slightly novice in Japan, I thought the rates from 2015 were valid but I guess that was a rare sight as you have mentioned.

And a minor request: When someone says "it" will go higher/lower, since "it" might be taken to mean either dollars or yen, it would be nice to say things more clearly, like "the yen will weaken to 115", or "the yen will strengthen to 102". Similarly if stating it in dollars.

Roger that, will be clear"er" next time. Sorry for the confusion!

Foreign exchange trends are difficult for anyone to predict but for what it's worth I think "conventional wisdom" on the Yen/Dollar exchange rate is that Abenomics suppressed the value of the yen substantially. Also in conditions of economic growth the US dollar tends to fall against other currencies.

I can't claim I fully understand your statement however, I get the general gist that I will be adding multiple unknown to the equation that might potentially give more headache than relief on the long run! Thanks for the tip

I have been trying to find a solution to that question as well and could not find a valid answer. The high interest savings accounts or cash deposits are not immediately available and you have fees if you want to withdraw the money or transfer to your current bank account.
Therefore for the time being, I just keep it on a normal bank account without fees

Roger that, I was not aware about the "waiting times" for certain deposits but now that I read a bit, I am less of a Rookie, thanks for the insight!