"Today, banks invest customers' deposits and keep the returns mostly for themselves (the national average interest rate is just 0.03% [2])."
Yes, but banks aren't just turning around and investing deposits in the S&P 500. Right now, the marginal reserve requirement in the US is 10%. So the bank is keeping 10% of your deposit as cash.
This is pretty similar from the common advice to "keep 3 months' living expenses as an emergency fund." And thinking about that advice, I have to question the value of Financial Choice:
* If I'm a user with a reasonably high net worth--say, 10x my 3-month living expenses--I should probably just put the 3-month expenses into an FDIC-insured bank account and put the other 90% of my assets into a low-cost mutual fund or ETF.
* If I'm a user without 10x my 3-month living expenses, I definitely shouldn't be investing my emergency fund in speculative assets like equities!
So, like, who is this for? :)
Edit: Reading some of the other comments here, I get the impression there are some posters here in my first category who would like their 3-month living expenses to also be invested in equities. And yeah, if you are relatively high-net-worth-relative-to-expenses, you can risk it--someone in the "10x" category can suffer a 40% market downturn and still have a meaningful emergency fund.
On the flip side, consider that market downturns and the need to tap the emergency fund are not statistically independent; the emergency fund exists, in part, to avoid forcing you to reduce your market position to cover expenses when you lose your job in a downturn!
Yes, but banks aren't just turning around and investing deposits in the S&P 500. Right now, the marginal reserve requirement in the US is 10%. So the bank is keeping 10% of your deposit as cash.
This is pretty similar from the common advice to "keep 3 months' living expenses as an emergency fund." And thinking about that advice, I have to question the value of Financial Choice:
* If I'm a user with a reasonably high net worth--say, 10x my 3-month living expenses--I should probably just put the 3-month expenses into an FDIC-insured bank account and put the other 90% of my assets into a low-cost mutual fund or ETF.
* If I'm a user without 10x my 3-month living expenses, I definitely shouldn't be investing my emergency fund in speculative assets like equities!
So, like, who is this for? :)
Edit: Reading some of the other comments here, I get the impression there are some posters here in my first category who would like their 3-month living expenses to also be invested in equities. And yeah, if you are relatively high-net-worth-relative-to-expenses, you can risk it--someone in the "10x" category can suffer a 40% market downturn and still have a meaningful emergency fund.
On the flip side, consider that market downturns and the need to tap the emergency fund are not statistically independent; the emergency fund exists, in part, to avoid forcing you to reduce your market position to cover expenses when you lose your job in a downturn!