One of the most important aspects of a healthy financial strategy is an emergency fund. Any financial planner Orlando will insist it’s a top priority for all of their clients. That’s simply because unexpected events happen all the time. A severe flu, a storm that causes damage to the house, a clunking noise in the car are all causes for alarm that cost extra money. Those types of unplanned problems are why it is suggested you put away 3-6 months of living expenses in order to survive these surprise set backs.
The question is not “should you create an emergency fund,” though, it’s “where do you keep your emergency fund?” You need access to that cash in a drop of a hat, and that means there needs to be some thoughtful consideration behind where it’s kept. Cash under the mattress is not a good idea, on the same token, it can’t be tied up; you’ll need it quickly, after all. Here are a few of the best places to keep your emergency fund, and why.
High Yield Savings Account
A high yield savings account may be the best place for your emergency fund. This is because not only is the money kept here always accessible, but you’ll also earn interest on your deposits. Don’t be afraid to shop around and seek out a high yield option that has the most competitive interest rate and doesn’t have any type of monthly fees or balance requirements. You’ll most likely be able to find a welcome bonus too, which will be a nice addition to the money you’ve already saved.
Certificate of Deposit (CD)
Certificates of Deposit or CD accounts offer a fixed rate of return over a fixed period of time. The rate of return is guaranteed so that means you’re guaranteed to make money on your money. The down side of a CD is that there is a penalty for withdrawing your money before the allotted time is up. Many clients combat this issue by “laddering” their CDs. This means they open multiple CD accounts with different maturity dates, that way when money is needed, it is accessible.
Money Market Account
A Money Market is an easy way to invest your money with higher returns than a traditional savings account. They can be opened online, with an advisor or at a local bank and your funds can be accessed online, usually through an app or portal. You’ll be able to retrieve your money 24/7 but Money Markets do have fees, so once again, it will be in your best interest to shop around until you find the right account for your needs.
Your emergency fund is meant to be a safety net and protect you or your family when the unexpected happens. It needs to be accessible to you at any time, but when it’s not being used it should be working for you. If your money isn’t earning money and growing it’s not helping you as much as it could. Talk to your bank, or your advisor and see what is readily available to you and what type of account would best suit your financial needs. Establishing an emergency fund should be a top priority.