You can’t stash your emergency savings under your mattress or stuff them in the back of your dresser. Find out why you shouldn’t keep your savings there and where you should keep them instead.
Why Are These Bad Locations?
While you want your emergency savings to be accessible at a moment’s notice, you don’t want to keep them in the form of paper bills. Paper bills are easy to steal and difficult to track. If a stranger grabs your stash, you’ll have no way to retrieve those funds.
Keeping your savings at home will also tempt you to make unnecessary withdrawals. Whenever you need some extra cash for groceries or a night out, you’ll pull from the pile of cash hidden in your house. If you keep up with this bad habit, you could dwindle your savings, leaving yourself with a smaller amount to use in emergencies — or worse, leaving yourself with nothing at all.
If you make this mistake and you don’t have enough savings to cover an emergency expense, you don’t have to panic. There are still some payment options available. You could charge the expense to one of your credit cards and then tackle the balance at a later date. Or you could go to a website like CreditFresh and apply for a personal line of credit. If your application is approved, you can request to withdraw the necessary savings from your line of credit and then cover your emergency expense. Afterward, you can manage the repayment process.
Where Should You Store Your Savings?
A Savings Account
One of the best options for storing your emergency fund is in a savings account through a bank or credit union. A savings account is a bank account designed to store and build up your funds. It will come with an interest rate and annual percentage yield to help the balance automatically grow. The more you put away into your savings account, the more interest will accumulate.
Other than compounding interest, what are the benefits of using a savings account for your emergency fund?
- Your funds will be protected by passwords, security questions, PINs and other obstacles.
- With the help of online banking, you can carefully track the contents of your savings account at any time.
- If your debit card is stolen, your maximum loss will be $50 of the unauthorized charges when you report the theft within 2 business days. If you report the loss before any unauthorized charges are made, you will be responsible for $0.
- You can withdraw the necessary savings to cover an emergency expense at any moment.
A High-Yield Savings Account
If you really want your emergency fund to grow, you should store it in a high-yield savings account. A high-yield savings account is similar to a standard savings account but with a higher interest rate and corresponding APY.
To accommodate for this higher interest rate, the initial deposit and the minimum balance for the account will be higher. Do not move your savings into this type of account until you’re confident you can meet these standards.
A Money Market Account
A Money Market Account (MMA) is a specialized savings account with a high APY incentive. It is very similar to a high-yield savings account, but it can allow owners to use a debit card or write checks.
Stop keeping your emergency fund at home. Store those savings in one of these accounts and help them grow.