Having an emergency fund is essential so that you’re not constantly worried about spending money. Without it, you’re more likely to have to resort to high-interest loans or borrow money from friends and family in the event of an emergency. Here are the best places to keep your emergency fund:
High-Yield Savings Account
Most people are familiar with savings accounts, making it one of the most uncomplicated places to leave your emergency cash. The best thing about them is that they have high liquidity, meaning that you can take your money out whenever you want. But not all of them are created equal. The rates vary a lot depending on the bank or institution, so it’s best to look for high-yield savings accounts. There may also be a minimum required deposit and withdrawal limits.
Certificate of Deposit (CD)
A certificate of deposit is a saving tool in which you agree to leave your money locked up for a certain period of time in exchange for a rate of return. Due to this reason, they usually pay more than high-liquidity investments like savings accounts. The longer you leave your money there, the more interest you’ll earn on your funds. However, if you decide to withdraw the money before, you’ll have to pay a penalty fee. CDs are usually insured by the Federal Insurance Corporation (FDIC).
Money Market Account
Another great option to leave your emergency money in is money market accounts. Similar to savings accounts, they offer high yields, and money can be taken at any time, and the funds are insured by the FDIC. However, you should keep in mind that there are withdrawal limits and higher fees. You will need between $500 to $2500 to invest in money market accounts.
If you’re open to more risk but also higher returns, you should consider investing in mutual funds. In simple words, they are pools of money gathered by a variety of people for investments like bonds, stocks, and others. There are several types such as equity, fixed-income, index, balanced, money market, international, specialty, and exchange traded funds. However, keep in mind that you will require an initial investment of $500 to $5000.
Treasury Bills and Savings Bonds
You don’t need a lot of money to invest in treasury bills. In fact, you can start with only $100. When you buy a treasury bill, you’re essentially purchasing government debt obligations with a maturity period of one year or less. Since they’re issued by the US government, they are one of the safest investments you can choose.
On the other hand, Savings Bonds are somewhat similar to treasury bills. They are issued by the US government to citizens to help fund federal spending. There’s a minimum investment of $25, and they are exempt from state and local income taxes.
Last but not least, if you’re looking for the long term, you can keep your money in individual retirement accounts. IRAs differentiate themselves from other investments due to their tax advantages. There are several types of IRAs, such as Traditional, Roth, SEP, and Simple IRAs. In order to start, you will need an account at a credit union, bank, or financial service provider.