How to Store Your Emergency Fund in Four Different Locations
You know you need an emergency fund, but where should you store it?
Things do happen. Often in the most unexpected places. As a result of a flu that takes over your body and mind. It sounds like your car’s brakes are malfunctioning. The water heater has failed. You get the gist of things. Building an emergency fund is a common recommendation from financial experts. If you don’t have it, you and your family could face financial difficulty if you don’t have it. If you have a three to six-month emergency fund, you should keep it separate from your regular checking and savings accounts so that it may be designated for emergencies exclusively.
An emergency fund should be kept in a position where it is easy to obtain in the event of an emergency.
Jobs lost, medical bills, car or home repairs, a significant income decrease or any other financial setback can be considered a financial emergency. (Sneakers, the latest smartphone, a weekend getaway… not so much.)” Emergency funds can give a financial buffer and several months of support in the event of any of the above-mentioned catastrophic events.
A place to keep your emergency savings
Make sure your emergency fund is in a safe place and that you are getting a return on your cash reserves when you have thousands of dollars at stake. However, since this money must be easily available in the event of an emergency, you must carefully consider where to keep it. Consider these four options for storing your emergency cash when making your final decision:
1. Bank accounts with high interest rates.
Saving money for a rainy day in a high-yield savings account may be a better option. You’ll get interest on your deposits as well as easy access to your money with this form of bank account. Find a high-yield savings account with a competitive interest rate and no monthly fees or balance requirements to use as an emergency fund.
2. Accounts in the money markets
Don’t forget about money market accounts when selecting where to invest your emergency reserve. Higher interest rates can be found in money market accounts, like savings accounts. Money market accounts can be opened online or at a local bank and accessed via web-based account management or an ATM.
Money market accounts are a convenient way to save for unexpected expenses because you may access your money whenever you need it. While money market costs can eat away at your returns, it’s important to keep this in mind. Before deciding where to keep your emergency fund, it pays to look around and evaluate costs and amenities, just like you would with any other type of account.
3. Certificates of deposit (CDs)
Fixed-rate CDs, or Certificates of Deposit, have a predetermined term and a predetermined rate of return (e.g., 24 months). Investing in a CD could be a good method to boost your emergency fund’s interest rate.
Due to the fact that CDs “lock up your money,” it is possible that you will be charged a fee if you stop your CD account early in order to get access to your money. “Laddering” your CDs—opening many CDs with varying maturity dates so that a certain amount of cash is available at all times—is a common way to address this issue.
Jobs lost, medical bills, car or home repairs, a significant income decrease or any other financial setback can be considered a financial emergency.
4. Individual Retirement Accounts (IRAs)
Once you’ve reached retirement age, an IRA account may be an excellent way to keep your emergency savings. It’s possible to earn more money from a Roth IRA than you would from a standard savings account without taking on too much risk.
A Roth IRA allows you to contribute post-tax money. The funds can be withdrawn tax-free when you do so. If you’re eligible, you can contribute up to $16,000 each year to your Roth IRA without paying taxes or incurring IRS penalties.
Consider a Discover IRA Savings Account when deciding where to put your emergency cash. Contributions and withdrawals to this account are not restricted to a set period of time.
To avoid paying an IRS early withdrawal penalty, don’t take your money out of your retirement account before the specified age. Inquire about your personal circumstances with a tax professional.
Make your emergency fund work for you
The purpose of an emergency fund is to safeguard you and your family from financial hardship caused by unforeseen costs. Even when you’re not using it, your account requires a safe place to flourish. You can keep your emergency fund in a high-yield savings account, CD, money market account, or even a Roth IRA until you need it.