Where Should You Keep Your Emergency Fund?
Posted: September 20th, 2010 | Author: Joe | Filed under: Saving | Tags: Emergency funds, Guest Post, Saving, Savings, Tips | No Comments »Taking control of your finances begins with having access to an emergency fund. People who have adequate money in an emergency fund aren’t forced to turn to credit cards when an unexpected expense pops up. The typical rule of thumb, or the expert recommended amount to keep in an emergency fund is three to six months of your living expenses.
As you’re building your emergency fund or if you’ve already saved the money, the next thing to consider is where you should keep your emergency fund. It needs to be extremely liquid, meaning you can access it whenever you need it, but in the meantime it should be growing and earning interest so you won’t want to stick it under your mattress or in a hole you dig in the yard!
Here are things to consider when deciding where to keep your emergency fund:
Risk Free – don’t invest your emergency fund in anything that could lose value, like mutual funds or the stock market.
High Interest – since you hope you won’t need to withdraw money from your emergency fund frequently, you want to save the money in an account which will pay you interest for leaving the cash there. Look for the highest interest rate you can get, even a half of a percentage point makes a difference over the long term!
FDIC Insured – if you stash cash under your mattress or somewhere in your home, not only do you lose out on interest earnings, but you’re out of luck if your house burns down or gets robbed. Use an FDIC insured bank to make sure your money is protected.
Accessible – emergencies by nature are normally events which happen unexpectedly. If you have your emergency money tied up in investments which require time to mature before you can access them, it’s not going to do you much good, is it?
Certificate of Deposits
If you have a large amount of money reserved for your emergency fund, you might consider CD laddering, provided there is a CD which matures every month. You don’t want to pay penalties or early withdrawal fees to access your money when you need it.
Another way to use Certificate of Deposit products to help grow your emergency fund is to place part of your savings in CD’s and keep the rest in a more easily accessible savings account.
High Interest Savings Accounts
The majority of people should keep their emergency cash in a high interest savings account. The money is risk free, accessible at a moment’s notice, FDIC insured and will pay you interest for keeping the money in the account.
Take time to compare savings account rates among several banks before choosing. The higher the interest rate you can find, the better! Also consider bank fees, the ability to link your savings account with your checking account, whether or not you want an ATM card for the savings account, and the quality of customer service offered before choosing a bank.
Debbie Dragon is a freelance writer for DepositAccounts.com, where you can compare savings account rates from dozens of banks in one place.
