When emergencies strike unexpectedly, sometimes there’s no way to predict when something will go wrong in your life. But you can prepare for fallout with your savings. An emergency fund is a unique financial tool that helps cover life’s unpredictable and expensive expenses, even when your paycheck is tied to your regular bills.
Gone are the days when you could store this emergency stash under your mattress. Not only is this part of your bedroom not the safest place to be, but you’ll lose access to all the perks of having a digital account, like insurance and interest.
5 things to consider when opening an emergency savings account
An official savings account is a great place to store your emergency funds. If you haven’t opened an account yet, or if you want to find a new one with better perks, this guide will help you. Here are five things the next account has to offer.
accessibility
One of the most important features of a savings account is accessibility. Emergency funds must be liquid in order to be useful in an emergency. Unfortunately, some banks restrict withdrawals on some accounts, making them unsuitable for emergencies.
Beware of any kind of withdrawal hold that delays when you can receive your money. Depending on your account, you may have to wait days or weeks to receive the funds. You should also be aware of accounts that limit the number of withdrawals you can make in a month or the amount you can withdraw at one time.
These limits are often traded for perks such as higher Annual Yield (APY). This is another important feature that we will discuss later. As you can see below, you should always aim for the highest possible APY, but high APY is not worth sacrificing liquidity.
Without emergency liquidity, you may feel like you have no emergency savings at all. Holding your deposit may prevent you from using it in time. You may even have to cash in if you have to wait weeks to access your money.
Cash advances are a convenient alternative to savings. However, like bank accounts, they can vary greatly between financial institutions. If you’re not careful, you can borrow from financial institutions that impose similar delays on your funds, hindering how quickly you can make advance payments.
Look up financial institutions such as money key Understand realistic time constraints when renting cash advances online. If approved, you will receive your cash advance as a direct deposit the next business day. However, the exact timeline depends on your checking account’s deposit policy.
Shopping can increase your chances of finding cash advances that work on your urgent timeline. .
high interest rate
Interest isn’t just what you can borrow for cash advances. This is also something that you can earn from your savings. Maximizing interest saves you more in the long run, as interest payments are reflected in your balance.
To find out how much interest you can earn on your account, look at the posted Annual Yield (APY). This represents the true rate of return a deposit earns.
Most basic savings accounts offer as little as 1% APY, which isn’t keeping up with the cost of living. In other words, the purchasing power of money in these basic accounts loses value over time.
Inflation has hovered around 6% to 7% over the past two years. You will rarely find a savings account with comparable APY, but you can find a higher yield account that offers 5%. Make sure you haven’t made any concessions to unlock this high APY. As mentioned above, I don’t want to deal with pending withdrawals, costs or balance limits.
zero cost
The next consideration is cost. Some accounts have costs, either through monthly fees or other charges for certain activities. These charges are not uncommon at some banks, but you don’t have to pay them. Many other banks offer free savings accounts.
Some banks may apply a monthly fee for the privilege of high interest rates, but don’t be fooled. The interest you earn isn’t worth the fees you pay because you’re unlikely to get a high return on your emergency fund.
You should also double-check that no transaction, ATM withdrawal, transfer, or statement fees have been charged on your account. These fees eat into your savings if your emergency fund has a certain regularity.
No minimum balance
You never know how often you’ll need to put in emergency funds. A string of bad luck can empty your entire account and even bring your balance down to $0. You shouldn’t be penalized for using all your savings. After all, emergency funds are designed to be used.
Be careful with accounts that require you to maintain a minimum balance. If you fall below this minimum amount, you may be penalized.
FDIC Insurance
One last thing to check is that your account is insured with the FDIC. Short for Federal Deposit Insurance Corporation, the FDIC is a government agency that protects financial institutions. We provide insurance to protect your deposits if your bank of choice goes bankrupt.
Given the recent failures of Silicon Valley banks, FDIC insurance is more important than ever. The FDIC will refund his SVB customers the full amount of their insured deposits, up to $250,00, so they won’t lose money.
The same security applies to FDIC insurance accounts. Knowing that his emergency fund is protected by his FDIC means his hard-earned savings are safe, even in the rarest of bank failures.
Takeaway
Opening a savings account to hold your emergency funds is quick, easy, and straightforward, but don’t rush the process. You should be able to access your savings quickly.
Fees, minimum balances, and pending withdrawals are often prices that accompany high interest rates. But interest isn’t worth these trade-offs when it comes to emergency funds. You can find free and unlimited banking that offers decent rates of return without compromising accessibility.
Please keep this in mind whenever you need a new account. These 5 tips will help you find the right option.