Having an emergency fund can let you avoid taking on debt or dipping into your retirement account if you lose your job, you or a family member has an unexpected medical bill, or your house or car needs repairs. Where you keep your money is important. Here are some tips to help you figure out the best place to put your emergency savings.
Have a Separate Account for Emergencies
Set up an account that’s exclusively for your emergency fund. That will help you keep track of how much you’ve saved and stay on track to meet your goal. Keeping your emergency fund separate from the rest of your finances will also help you avoid the temptation to use the money for something that’s not an emergency.
Earn Interest on Your Savings
Let your money work for you. Putting your savings in an interest-bearing account can give you even more of a financial cushion if an emergency arises. High-yield savings accounts offer interest rates that are well above the rates for traditional savings accounts. They’re generally offered by online banks. Another option is to open a money market account. It can earn a sizable interest rate, and you might be able to use a debit card or check to pay an unexpected bill.
Keep Your Money Safe
Put your emergency savings in a federally insured bank or credit union. Stashing money at home is risky. It can be stolen, or it can get lost if your house burns down. Even if you don’t lose your money, it won’t earn interest. Investing your emergency savings in the stock market might help it grow, or it might leave you without money available when you need it most. Don’t expose your financial lifeline to the volatility of the stock market. Keep your emergency fund in an account where it will be safe.
Make Sure You’ll Have Easy Access to Your Money
If an emergency arises, you might need money right away. Funds that are in a bank or credit union can quickly be withdrawn or transferred to a different account. A certificate of deposit, or CD, can offer an attractive interest rate. A potential downside is that you’ll be required to keep your money in the CD for a specific length of time, which might be anywhere from a few months to several years. If you withdraw money early, you might have to pay a penalty. Some CDs don’t charge early withdrawal penalties, but they tend to have lower interest rates than other CDs.
Explore Your Options
Emergencies are inevitable, and you never know when they might happen. Building an emergency fund is essential. Selecting the right account can help you meet your savings goal and have access to money when you need it. A wide range of accounts are available through dozens of financial institutions. Do some research and carefully review the terms, including interest rates, minimum balances, and fees, so you can select the savings vehicle that’s best for you.
