We are all pretty aware and have talked before about keeping 3-6 months of living expenses in an emergency fund. Maybe you already have this emergency fund or you’re on your way to actually getting that fully funded. But, with this 3-6 months of cash no one gets excited to just leave that sitting in cash. Today, I want to talk you through some common places where you can park these emergency funds.
Places for your Emergency Fund:
We typically think we should just leave our emergency fund in cash. When I say cash this is leaving it not in your everyday checking account so you see it, but rather a separate account. The only problem with this right now is we do not get much interest on these funds. It can be really hard to see that chunk of money just sitting there. Instead this fund could actually be earning more money through interest.
The other place that we typically think is a money market. This comes to mind because just beyond the cash in the account you earn a little bit more. Right now it’s significantly more so it might be .5%. As the Fed changes rates this rate will fluctuate.
High Yield Savings Account
Another account that is very similar to a money market is a high yield savings account. While a money market and a high yield savings account are basically the same thing a high yield savings account. You use the money market because you want to earn a higher interest rate. When you search for these don’t be surprised if they have a money market and also a high yield savings account; because they are two separate things. It is possible that one of these is actually yielding more than the other. This is why you want to know that they are two different things. They act the same so you can choose either account type. Some may offer the ability to set up multiple buckets of various savings goals while the other does not. It’s those features that affect which one you might choose.
Certificates of Deposit (CDs)
If you have a good amount in emergency funds but are nervous about making sure you are going to earn the interest a CD might be part of a solution. With a CD you have to keep it there for a set amount of time. In the event of an emergency you might have to give up some of the interest you would have gotten if taken out early, so this isn’t really your ideal solution.
Watching the interest rates!
With all of these you just want to be sure you are watching the interest rates as they change. Like I had mentioned these fluctuate. Right now the Fed holding rates low. Don’t be surprised if even money you have in your money market which has been a decent amount for a while, such as 1 or .8% is down to .5%. If you are watching them you will know that money in a checking account is earning less than in a money market, maybe closer to .001% today. But you can move funds back and forth if you have both of these account types as an option.
These are some of the common places we think when we talk about parking this emergency fund cash. I want to be sure and let you know these are great options of where to put your emergency fund. Be watchful in what the interest rates are on the different types of accounts so you are earning as much as you can with those funds. Especially if they are needed for a rainy day. If you have any questions about this or need help setting up an account for your emergency fund please reach out to us.
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