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Life has a funny way of throwing us curveballs when we least expect them. From surprise medical bills to sudden car repairs, emergencies often show up unannounced.
That’s why an emergency fund is crucial for weathering a financial storm. But where should you stash your savings to ensure it stays safe and grows?
Forget the traditional piggy bank or storing money under your mattress. Here are the four best places to store your emergency savings.
1. High-yield savings accounts
The average savings account interest rate is 0.58%. But you can do a lot better than that with a high-yield savings account. These accounts have higher interest rates than traditional savings accounts, giving your money a boost.
You may not be familiar with some of the banks offering high-yield accounts, which are mostly online. But don’t let that scare you. Most online banks are FDIC-insured, which means your money is protected to a certain limit.
Another concern people often have when it comes to emergency savings is accessibility. After all, emergencies don’t wait for convenient banking hours! High-yield savings accounts offer easy access to your funds through online and mobile banking. You can transfer money, make withdrawals, and manage your account from the comfort of your couch. Plus, many high-yield accounts have low (or no) minimum balance requirements, which is great if you’re just starting to build your savings.
2. Money market accounts
If you want a bit more flexibility, a money market account could be the answer. Think of a money market account as a hybrid between a savings account and a checking account. It helps your money grow while still allowing for easy access, making it ideal for emergency situations.
Like high-yield savings accounts, money market accounts have competitive interest rates. They also provide limited check-writing capabilities and a debit card, giving you quick access to your funds when needed.
Money market accounts often come with tiered interest rates. This means the more money you deposit, the higher the interest rate you can earn. So, if you have a substantial emergency fund, you can enjoy even better returns on your savings.
3. No-penalty CDs
A traditional certificate of deposit probably isn’t a great choice for your emergency fund. Most require you to keep your money invested for a set amount of time. If you withdraw your money before the term is up, you’ll have to pay a fee.
“Liquidity is absolutely vital to consider when thinking about where to keep your emergency fund,” says Scott Schleicher, senior financial advisor at Empower.
Like the name suggests, no-penalty CDs don’t charge fees for early withdrawals. They have slightly lower interest rates than traditional CDs, but you can withdraw your funds at any point, without any financial repercussions. This flexibility is key when it comes to emergency savings since you never know when you might need those funds.
Unlike high-yield and money market accounts, no-penalty CDs have fixed interest rates. This means you’ll know exactly how much your money can earn. It’s a reliable way to plan and manage your emergency funds.
4. Cash management account
Cash management accounts are like a one-stop shop for your finances. These accounts combine the features of checking accounts, savings accounts, and investment accounts. You can store your emergency savings alongside your everyday spending money, making it easy to manage everything in one place.
Brokers or robo-advisors often offer cash management accounts. While they don’t match the rates of high-yield savings accounts, these accounts still offer a decent return on your money.
These accounts allow you to access to your funds through online and mobile banking, debit cards, and even check-writing capabilities. Some even offer perks like ATM fee reimbursements and budgeting tools. That way, you can keep your emergency fund growing while having the flexibility to handle daily expenses.
How much money should I have in emergency savings?
Once you’ve picked a place to store your savings, you need to decide how much should stash away. Unfortunately, there’s no one-size-fits-all answer.
A good rule of thumb is saving three to six months’ worth of living expenses. Calculate your average monthly expenses, including housing, groceries, transportation, and any debt payments. Multiply this figure by the number of months, and you’ll have a starting point for your emergency fund goal.
It’s also crucial to consider your personal situation. Are you the sole breadwinner in your household? Do you have dependents or other financial obligations? Asking these questions will help you determine whether you need a larger emergency fund to cover potential expenses.
Your career may also play a role in the size of your savings. If your income fluctuates or you work in a less stable industry, you may want a more robust safety net.
Bottom line
We all have to deal with unexpected expenses. An emergency fund can limit your stress if and when those scenarios arise. While choosing an account for your savings, it’s essential to balance accessibility with security and growth.
Whether you opt for a high-yield savings account, a money market account, CDs, or a cash management account, the key is to choose an option that aligns with your financial goals and risk tolerance.
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