Are you financially secure if you suddenly lost your source of income? According to a new Bankrate survey, only 48% of U.S. adults say they have enough emergency savings to cover at least three months’ worth of expenses, and 22% have no emergency savings at all.
Having an emergency savings account can help you avoid relying on credit cards or securing a loan, which can quickly lead to being deep in debt.
Not only can an emergency fund give you confidence that you can handle unexpected events without adding money worries, but it can also protect you from the financial fallout of a job loss or other income loss.
Ideally, you should aim to have enough money in emergency savings to cover three months of essential expenses. Most experts believe you should have enough money in your emergency fund to cover at least three to six months' worth of living expenses.
In addition to making a concerted effort to save money by cutting expenses, finding the right savings account can make a difference. Ideal savings accounts for keeping an emergency fund with easy access include:
- High-yield savings accounts. A high-yield savings account, also known as a high-rate savings account, can vary by minimum deposits and balances but usually pay a much higher yield on money than a regular savings account. You can withdraw or transfer money out of your account up to six times per month without having to pay a penalty.
- Money market accounts. Similar to the high-yield savings account, a money market account can earn a higher APY than a typical bank account. What makes a money market different is you generally need a larger minimum deposit but comes with a debit card and check-writing capabilities.
- Certificate of deposit accounts. A certificate of deposit account can earn you an even higher rate than a high-yield savings or money market account, but you need to keep your money over a certain period or “term” or pay a fee for early withdrawal. A solution to making sure your money isn’t tied up for too long is to implement a CD laddering strategy. CD laddering is a way for investors to get higher rates with CDs but keep accessibility to funds by setting up multiple CDs at staggered intervals. As each CD finishes at a set term, you can maintain a steady stream of cash while still earning higher rates than a regular savings account.
By making a few lifestyle changes and being diligent with putting money in an interest-bearing savings account, you can quickly build up a substantial emergency fund. If you have any questions about what savings account may be right for you, give the experts at NASB a call at 800-677-6272, or visit one of our branches.