How I get 1000% to 3000% more interest with my emergency fund savings

Being a self employed studio artist as my full-time job is a pretty awesome thing. I feel very blessed to have been able to make this my life! However, there are some challenges involved. One that I learned early on was that my income is just going to be highly variable. Some months hardly any work sells. I think my worst month I had a grand total of $10 in income! Thankfully this is offset by months of monster levels of income way beyond what I ever made when working a normal wage type job. Over the course of a full year things seems to average out and remain fairly constant year to year. However, due to this wide income variability I would be a financial and nervous wreck if I tried living paycheck to paycheck. I’ve found I really have to have a significant stash of liquid funds to ride out the low points with stress free ease.

Usually this sort of thing is called an emergency fund. It’s a pile of savings more or less earmarked to be on hand to handle the financial surprises you know are bound to happen, but never know quite when they will happen or what they’ll be. For the most part this money just sits somewhere ready to be accessed when that time arrives. Often it is simply parked in a bank saving account. This is where I kept mine for many years.

I think emergency funds are a great thing for everybody to have. I know the piece of mind I got when I was finally able to save enough for mine was enormous! For many years prior I had always been living on the edge of financial disaster. I suspect most of us know what that feels like. It’s not fun.

Common recommended amounts to have in it are from 3 to 6 months of normal expenses. For me this didn’t feel like enough because the nature of my business not only has the widely variable income levels already noted, but can also involve large expenses when I need to purchase supplies, pay my quarterly estimated taxes, handle all the upfront costs sometimes involved in doing workshops, on top of actual “emergencies” that might occur like major car repairs and so on. In order to comfortably fund my outflows with my variable inflows I like to keep at least a full year’s worth of expenses on hand. This has allowed me to be secure in my studio art practice, without needing to run out and look for a “normal” job when sales dip low.

I’ve found though that I don’t really need all this saved cash to be fully liquid, as in available to spend at any moment of any day. I keep a range from fully liquid to what I think of as semi-liquid. As a result of carefully watching my finances over time I saw that there is hardly ever an instance I really needed large sums of money right that instant. Most of the large expenses I have can be fully seen weeks to months in advance, meaning they aren’t really emergencies. I just don’t know if my income will match them when they come due. As I thought about it more, I saw that even most emergencies didn’t need immediate cash. Major car repairs for example, my most common “surprise” expense, usually means calling the shop and scheduling a time to get my car in. That time is almost always a few days out. With my car, which is hard to find parts for, it’s not uncommon for it to be a week or longer to get repaired.

These days I keep a small amount in two checking accounts always ready and available that can easily handle all my normal monthly expenses plus a bit more. On this money I earn zero interest. Then I keep about $3000 each in a couple savings accounts which tends to be enough to ride out 90% of my income/expense fluctuations. When I need to dip into these I just fill the accounts back up when money comes in again. Unfortunately the interest rates they pay are next to nothing at .15% and .25% APR. Sadly I suspect most of you are familiar with these sorts of rates.

Realizing that for most instances I should be able to wait between a week to a month to get access to the money has allowed me to expand just where I can keep the bulk of my emergency savings, because I don’t need it to be fully liquid, just semi-liquid. I thought that today I’d share what I’ve been doing in order to boost the interest I earn on this money that is mostly just sitting by 1000% to 3000% or more beyond what my bank savings accounts pay.

First a couple of caveats. I realize I have many international readers of this blog, which is pretty awesome! Unfortunately what I’m going to share next is only available to US citizens, however you might be able to find similar things that are available to you. Second, I do hope it’s obvious that I am absolutely NOT a financial advisor and you should not take any of this as me giving you specific financial advice. I don’t know anything about your specific situation, needs, or challenges. I’m simply sharing what I’m doing to offer info that might be able to help you as well.

Okay, with that said there are two things I’m currently doing with the semi-liquid portion of my emergency fund to greatly increase the interest I earn on it. The first is utilizing Treasury Direct which I feel is actually more secure than keeping money in the bank. The second is a relatively new company called Worthy Peer Capital. They pay significantly more interest but are also without a doubt more risky. Let me write a bit more about both these options.

First I’ll cover Treasury Direct. This is the site where US citizens can buy securities directly from the US Treasury. It’s a typical government website in that it’s rather kludgy to use, but with a bit of patience you can usually find the information you need. There are lots of things offered on the site which I’m not going to cover here. I’m just going to share what I’ve been doing, and that is to purchase 4 week T-bills.

To purchase any securities on the site you do need to first set up an account. That’s not too hard to do. They have buttons to click on to start the process as well as a guided tour to show you how it’s done. There is one little bit that confused me when I did it which I’ll share, though my confusion was probably more a result of me being a tech dinosaur and not realizing how things normally work. Part of the security procedures involved using what they call a “one time passcode” or “OTP”. I thought this was just a part of the initial account set up and when I had gotten everything else done I began waiting for them to send the OTP thinking that it was like an initial email account verification. I waited and waited and waited. I never got an email from them with my OTP. Hmm… Finally after a couple days I went back to the website and thought I’d just go ahead and try and log in to see what would happen. What I discovered was that the OTP was a normal part of the sign in process and in fact isn’t sent until partway through the process of signing in! It was never going to be sent until I began signing in. At that point it is sent immediately, though if there is a lot of internet traffic sometimes receiving it can take a few minutes.

So once I had my account with Treasury Direct set up I began purchasing 4 week T-bills. What I am doing is buying the government debt for which they pay a certain interest rate. The 4 week bills are the shortest duration, which because I am doing this with my semi-liquid emergency fund is what I want. Every 4 weeks I can either let the bills mature or roll them over and buy new 4 week T-bills. So I’m never more than a month away from getting access to all my invested money. However, to decrease the access time to at least part of it what I do is ladder the bills. The treasury sells these at auction every week. So rather than investing everything at once I initially divided my emergency fund into 4 parts and each week would invest one part. This way what I have is 25% of my investments there maturing every week, thus I am never more than a week away from access to at least part of my semi-liquid emergency fund.

By purchasing through Treasury Direct rather than a bank or broker I am limited in that I can only purchase them as a noncompetitive bid. What this means is that when they go up for auction I am saying I will buy whatever number I decide for whatever the auction rate ends up being. The auction rate is what determines the interest rate they will pay out. In theory I could be committing to purchasing T-bills that pay zero interest (or I suppose even negative interest in today’s crazy world), however, from what I’ve witnessed so far the rates don’t change dramatically from one week to the next. So you can look at the rates from past auctions and have a pretty good idea of the ballpark rate. The way I figure it too, it’s only 4 weeks. If I was buying a 30 year bond I might rethink it. If I were buying through a broker or bank then I guess I could make competitive bids. I’ve never done that so I can’t really speak to it.

At the time of this writing the 4 week T-bills have been paying a smidgen above 1.5% APR. Yeah, that’s not an amount to really get excited over. However, it is 1000%, or 10 times more than the .15% my bank savings account is paying. (Here is a link that should take you a page showing the most recent auction results to give you a sense of what to anticipate in the next one.) Since I don’t really need maximum liquidity on the bulk of my emergency fund it felt silly to leave the extra interest money sitting on the table so to speak. As noted before, I feel like the T-bills with Treasury Direct are more secure than keeping money in my bank too. It’s not that I really think my bank is about to fold, but the odds of that happening seem much greater than the US government defaulting on its debt. Not to mention, if that default happened then I’m guessing any money I have held anywhere in US dollars will have just taken a big hit in value!

One other thing to note, with Treasury Direct you do need to purchase in $100 increments. For the 4 week T-bills rather than paying an amount in interest what they do is discount the cost of the $100 security. What does this mean? Lets just say for example you were to earn $1 in interest on the $100 note. Instead of the note maturing and paying you $101 they will sell you the note for $99. Then when it matures you would get $100.

You can do lots more things with a Treasury Direct account but I think I’ll leave it here for now and move on to the second new place I’ve been investing the semi-liquid portion of my emergency fund. This is with a company called Worthy Peer Capital. I have much less experience with them, but am excited by what they offer.

What Worthy Peer Capital offers for investors are what they call Worthy Bonds. These are $10 bonds with a 36 month term currently paying a fixed 5% interest rate. This in itself doesn’t sound like something I would do with any money I needed to keep semi-liquid. However, what makes this attractive to me for a portion of my emergency fund is that they allow you to cash out your bonds at anytime without a penalty! This means that if my car suddenly craps out, is no longer worth repairing, and I find myself needing to go buy a new one I could cash out a bunch of Worthy Bonds early get the money and go purchase another car in a reasonable amount of time. It is sort of like a savings account that pays 5% interest.

However, there are some crucial differences that keep it from being like a saving account. The first and perhaps most important to keep firmly in mind is that Worthy is NOT a bank. I am not depositing money with them. I am investing money, and that money is in no way shape or form insured. It is not FDIC insured. I could lose 100% of it! They are simply allowing me to cash out the bonds early without a penalty.

At this point I have not yet tried cashing out a bond early, but from what I’ve read elsewhere online you can figure on it taking a week or so until the cash actually becomes available in whatever bank account you link to them. There is fine print on their site which notes that withdrawals of $50,000 or more may take up to 30 days to process. Fair enough, though this does suggest to me that the potential exists for problems to arise if a whole bunch of people suddenly look to cash out at the same time, rather like a run on the bank. My guess is that if a sudden economic crisis occurs it’s going to become much harder to redeem these bonds early. Personally I’m willing to accept these risks for a portion of my emergency fund in order to earn what is actually a decent interest rate.

Edited to add, as the stock market is experience tumultuous upheavals right now as a result of things triggered by the COVID-19 crisis I just got an email from the folks at Worthy Financial explaining a bit further how the proceeds from the bonds are diversified. I thought I’d share that here as I found it to be useful to know. Here is what they said:

“The loans we make at Worthy with bond proceeds are diversified across numerous forms of asset-based lending (inventory, purchase orders and receivables) and across industries (from educational toy robots to government construction to home furnishings). These loans are secured by either inventory or all the assets of the business.  In an effort to further diversify (and to keep money on hand to meet bond redemptions), we also direct a portion of the bond proceeds, approximately 40%, into a portfolio of fixed income securities, such as U.S Treasury bonds, corporate bonds and asset backed securities and cash and cash equivalents such as CD’s and money market funds, etc. Last but not least, we have some real estate investments as well. “

One of my early questions was how are they making money to support the interest payments? The way I understand it based on reading their website is that they are selling these bonds to raise capital which they then loan out to small businesses. That’s one of the missions of their company, to support small businesses and “main street”. However, they aren’t just loaning to any small business either. As the name of their bonds says they claim to only make the “Worthiest loans”, those that are “secured by liquid assets having a value significantly greater than the loan amount.” The idea being that if someone does default on the loan they can easily sell off the assets securing it to recoup the loss. Naturally the interest rates on these loans will be greater than 5% and thus the difference is their profit and what should make the business model stable.

This is currently only available to US citizens. Also if you are an unaccredited investor you are limited to investing no more than 10% of your annual income or net worth (excluding the value of your home), whichever is greater. Accredited investors are currently limited to investing no more than $100,000 if doing so online, but unlimited otherwise.

I found that setting up an account to purchase Worthy Bonds was pretty straightforward. Like Treasury Direct you do have to link to a bank account so they have a place to withdraw and deposit funds. In my experience thus far it seems to take about a week when purchasing bonds for funds to fully clear. Thus I expect that what others have said about it taking about a week to get funds when cashing out a bond is probably accurate.

I’ve also found all the user interfaces to be easy to understand and use (far better than Treasury Direct). One thing I especially like about Worthy Bonds is that they credit interest daily, as long as it adds up to at least one cent. I guess if you only had one $10 bond then it would take 7 days to accumulate 1 cent of interest. However, if you have seven $10 bonds in your portfolio then you would see 1 cent of interest credited daily.

As these interest earnings accumulate in your account you can do a couple things with them. If you want you can withdraw the interest at any time, the only condition being that you are limited to 2 withdraws a month if the amount is less than $10. That seems fair enough to me. If you wish you can also set up your account to automatically purchase an additional Worthy Bond whenever your accumulated interest reaches $10. In this fashion you are getting a sort of compound interest.

Worthy also does have a referral program. Thus if you are interested in trying this yourself we can both earn a free $10 bond for relatively little effort. It’s not much but if you are going to start investing with them you might as well grab a free bond. The way this works is that you can use my referral link to go to their site and open your account. Then when you purchase $200 worth of bonds they’ll give you an extra $10 bond right away you can start earning interest on. The small catch is that you must maintain your account at $200 or more for 6 months or you forfeit the bonus bond.

For me, the referrer, I get a bonus $10 bond when you fund your account with at least $100, but likewise the bonus bond is forfeited should you not maintain the account at $100 for 6 months.

Once you sign up you too should get a referral code you can share with others.

So if Worthy Bonds sounds like something you might be interested investing in I welcome you to use my referral link to get your bonus bond. Personally I’m rather liking the idea of earning 5% interest on a decent portion of my emergency fund that I feel the need to keep semi-liquid. Compared to the .15% I get with my bank savings account this amounts to over 3300% more interest, or 33 times the interest. It is certainly less secure than my bank account or T-bills with Treasury Direct though, so I’m still maintaining portions of my emergency fund in those. My Worthy Bonds are just a portion of my emergency fund. My plan is that they would be the last part to be cashed out since they pay the highest rate of interest. I actually hope to never run into an emergency where I need to do so.

Studio Snippet

For today’s studio snippet I thought I’d share this current piece in progress. I’m exploring more the initial deep hammer chasing followed up with normal chased lines that I’ve been playing around with recently. I think the form on this piece is close to done. I’m going to push a few areas deeper yet. After that I need to decide what sort of finish texture work to do. I have been leaving these with minimal texture, but I’m thinking I should try one with heavy texture of some sort. The plan is to do so on this piece, though I have to admit I’m really liking it as it is. We’ll see what happens when I get to that stage!

I’m happy to have a site where I can again allow comments. (I had to shut them off on my main website because the spam was simply uncontrollable!) So please I encourage you to share thoughts of your own. My general rule about comments though is just to play nice. Differing views are fine, but I’m not interested in engaging in or moderating verbal fights. If I feel things get out of hand, by whatever criteria I decide, I’ll just start blocking or deleting things.