• ETF Enthusiast

Where do you place your emergency fund?

A very important part about being financial secure is your ability to handle financial setbacks or disasters without digging into your investments or worse taking on debt in order to survive them. Most financial planners recommend having a fund to the value of about 3-6months (based on job security and other factors) of expenses available as a safety net for these extreme situations.


This safety net is something that should be built up as a priority before you even start investing. It is not ideal to be in a situation where you are forced to withdraw your long-term investments in order to fund an emergency. You need a fund specifically for this purpose so that the money you have invested has the time to grow through the volatility of the stock market. A fund like this is basically a form of your own form of personal insurance.


A fund such as this can obviously take some time to build up and we need to be wise as to where we place this money. There are many options to choose from and it is important we investigate some of the different options:


*note that info such as interest rates may have changed after time of writing (7 September 2016)


Under the mattress


Hopefully you know that this is obviously off the table, this has huge risks on its own and we will lose money every day due to inflation.


Bank account

unately very common option, since this will probably grow below inflation, my current bank offers 5.65% p.a at the current interest rate levels (which is one of the highest in the market).


It is very easy to access the money in a bank account and although you want to be able to access the money when needed it shouldn’t be so easy that you are tempted to use this money for things other than emergencies.


32 day notice account

Some of these offer great interest and are offered by most of the major banks. If we look at a R50000 deposit the major banks (Capitec not currently offering this option) offer the following:

This safety net is something that should be built up as a priority before you even start investing. It is not ideal to be in a situation where you are forced to withdraw your long-term investments in order to fund an emergency. You need a fund specifically for this purpose so that the money you have invested has the time to grow through the volatility of the stock market. A fund like this is basically a form of your own form of personal insurance.



Nedbank is the standout here simply because of the rate they are offering. It is worth mentioning that Investec bank has an option that offers 7.5% interest, however their minimum deposit is R100 000. It is also a bit fuzzy whether you need a bank account with these banks in order to open these accounts.


The problem I have with this is 32 days is a long time to wait if an emergency arises. Some banks offer immediate access to a certain percentage of the funds but these weren’t the banks with the best interest rates. These accounts will unfortunately not suite the purpose which we need an emergency fund for because of this lead time.


Money market fund


Money market funds aim for returns higher than bank deposits. Like bank deposits the only risk they face is if one of the issuers of debt that you have invested in defaults – this is extremely rare (the last case being African Bank). Click here for more info on what the money market is.


The risk lies with the mix of financial institutions invested in, generally the more established the institution the less interest you receive. A credit downgrade would likely have little impact on money market funds because of how strong our banks are. These funds are also quite liquid as well and can be withdrawn in under a week.


Looking at the top 3 performing and recognised money market funds in the country:



The only ETF that tracks money market funds in SA is the NewFunds TRACI ETF. It also has a total expense ratio of 0.20% which is less than most since this is a passive investment.

This ETF’s return since inception (just under 5 years) has been 5.64% p.a which is unfortunately less than the big funds and 6.56% in the last 1 year period. This is less return because the ETF takes less risk by only investing in big banks.


The Allan Gray money market fund invests in these banks plus 3 corporate companies and the government (a bit riskier as money market funds go but still very little risk involved), and this is where I have kept my emergency fund for many years.


Your access bond


For those who have an access bond, this is a great platform for you to store your emergency savings. Instead of earning interest on the money you will rather be saving money by paying less interest throughout the duration of your bond (effectively at the interest rate which the bank is charging you for the load, prime being 10.5% at the time of writing this).

This option can be as easy as withdrawing from a bank account so diligence is once again required.


The decision lies on each individual based on their circumstances, but I think clearly the best vehicles to store these funds are either your access bond or a money market fund.

ETF Enthusiast

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