An emergency fund is an exceptional safety net. Without one, you will be vulnerable to any urgent, unplanned expense that crops up. You may not have enough in your checking account to afford the expense right away.
In that case, your options for covering this type of expense will be limited. You could charge the expense to your credit card as long as the balance is far below the limit. You could also go to a website like CreditFresh to see whether you qualify for an online loan. If you meet the qualifications, you could apply. With an approved online loan, you’d be able to use borrowed funds to cover the expense in a short amount of time.
While credit cards and online loans are effective solutions, they shouldn’t be your first safety net. You should collect a lot of emergency savings so that you can handle surprise expenses immediately.
So, how can you make your emergency savings grow? Other than increasing your contributions, you can move your emergency savings into an account that will incentivize growth.
What Accounts Will Make Your Emergency Savings Grow?
A standard savings account is a simple but effective place to store your emergency fund while it’s still new. It will have a small interest rate that can help your balance grow over time.
A benefit of a standard savings account is that it’s budget-friendly. Many banks require no deposit to open an account.
High-Yield Savings Account
A high-yield savings account is similar to a standard savings account — only it has a higher interest rate and annual percentage yield (APY). You can expect to see your balance grow more inside one of these specialized accounts, especially when you make frequent contributions.
Before looking into this account option, you should know that banks set certain restrictions for high-yield savings accounts. Clients will be asked to maintain a minimum balance. Going below the minimum could result in fees. It could also nullify the compounding interest until your balance crosses the minimum threshold once again.
Money Market Account
A money market account (MMA) is another interest-bearing account. It’s similar to a high-yield savings account, where the balance will grow with interest and result in a significant APY. A unique benefit of an MMA is that it often comes with features like a debit card and check-writing privileges.
Like high-yield savings accounts, your MMA will come with certain restrictions. It will require you to meet a minimum balance to avoid fees and other penalties.
Certificate of Deposit (CD)
A certificate of deposit is a savings account that holds funds for a fixed term. The fixed term could be between a month to 10 years. In that fixed term, your funds will accumulate interest. Once the term is over, the CD is considered “matured,” and you can access your larger stash of savings.
One of the main benefits of CDs is that they have more competitive rates than other accounts. On the other hand, one of the main issues with them is accessibility. Your savings will be unavailable during the fixed term. If you make an early withdrawal from your CD, you will have to pay a penalty. So, it’s not ideal to use a CD as your only safety net for emergencies.
The more emergency savings that you have stashed away, the more you can rely on when disaster strikes. Use these accounts so that you never come up short.
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