Where to keep your emergency funds
Having an emergency fund is one of the very basic requirements of a healthy household budget, and as per industry experts, a must have in your personal financial goals. We never know when an unexpected situation or expense is going to pop up. So having an emergency fund of a substantial amount can provide you the very required respite in case you become jobless or some crisis turn up. Whatever, where should you keep your emergency fund?
Keep in your mind that that here we are talking about emergency savings, not emergency investments. Your rainy-day emergency fund should be easily accessible whenever you need them. However, the access should not be so facile that you can make withdrawals each time you want.
“I like using an account away from my normal checking account to build a psychological wall between my spending habits and my emergency fund,” says Ray Lucia, a nationally syndicated radio host. “Credit unions work well because they normally allow you to start with smaller amounts of money.”
Nowadays, online banks are also a good option to keep your emergency savings since you just cannot move in there and make withdrawals whenever you want.
You should consider keeping your emergency funds in a combination of different locations – an online account, in savings bonds, and as liquid cash in a lockbox at home that requires two different keys to open it. Keep one key with you; while keep another with your spouse to avoid any impulse spending.
If you are not satisfied keeping a significant amount of money in a standard savings account with a low rate of interest, you can consider a money market account that allows withdrawals only at certain minimum levels. You can also purchase short-term certificates of deposit of 3-6 months on regular intervals. However, if you choose such a way, you’ll have to constantly reinvest.
Though investments in bonds and treasury bills are comparatively much safer than stocks, getting access to those during emergencies is a daunting task.
Even you cannot consider treasury bonds as savings though backed by the full faith and credit of the federal government. They are simply investments. Again, though as per common notion, mutual funds, government and corporate bonds are safer investment options, they can easily lose value in the short term. Such a thing usually happens when market interest rates spike. So if you want to tap your emergency fund tomorrow, you need to have an account that offers total financial protection.