You’re hoping to start an Savings emergency fund, but you’re not sure where to store it. You can’t exactly keep all of that money tucked away in a piggy bank. So, which type of bank account could you use for it?
A Basic Savings Account
A basic savings account is a good option for an emergency fund. It’s available at most banks and credit unions and it’s incredibly easy to open. You can expect to pay $25 or less to open a new account. Some banks will charge nothing, especially when users decide to open one online.
A basic savings account comes with multiple features to encourage users to save. They typically have a small interest rate and a set limit on the number of withdrawals/transfers users can make in a month.
A High-Yield Savings Account
A high-yield savings account is similar to a basic savings account, but it comes with a higher interest rate and annual percentage yield (APY). You’re likely to encounter higher interest rates than usual because of initiatives taken by the Federal Reserve this year.
A high-yield savings account will come with more rewards than a basic savings account, some banks will set more restrictions, too. You might have to meet a minimum balance. If you go under that balance, you may get charged a fee and compounding interest may be temporarily paused until you resolve the issue. This penalty will vary by institution.
A Money Market Account (MMA)
A Money Market Account — sometimes called a money market deposit account (MMDA) — is an interest-bearing savings account. An MMA has a higher interest rate and APY than a basic savings account.
Another benefit is that it provides features similar to a checking account. Your MMA can be connected to a debit card, allowing you to spend your savings immediately. It can also come with check-writing privileges. This can be really convenient for your emergency fund.
MMAs typically have more requirements for users to meet. If you’re interested in opening this type of account, you can expect to encounter initial deposits, minimum balances and various fees.
The Importance of an Emergency Fund
Living without an emergency fund is a big mistake. Without an emergency fund, you might not have enough funds readily available to cover an urgent expense. If your car breaks down, you might not be able to afford to pay for roadside assistance or repairs. If your water pipes leak, you might not be able to pay for a plumber to fix them and stop the water damage from building up. If you get a sudden toothache that keeps you up at all hours, you might not be able to pay your dentist to treat it.
You’ll have a limited set of options for handling emergency expenses whenever they arise. As long as you have room on your credit card, you could charge an expense to it and then pay down the balance through the monthly billing cycle. You could try to submit a request for a personal loan online through CreditFresh and see whether you get an approval. An approved personal loan could let you borrow enough funds to manage the expense in a short amount of time. In the same vein as your credit card, you would then follow a steady repayment plan through a billing cycle.
These are effective backup plans for financial emergencies, but they shouldn’t be used as your first lines of defense. An emergency fund is the best defense against these types of disasters.
So, it’s time to build one and store it in the right savings account.