Is there a Wrong Place to Keep Your Emergency Savings?
Because emergency savings could play a huge role in your life, it may be helpful to know about the wrong places to keep those emergency funds. Here is more information on where to place your emergency savings, and just as important, the places to avoid.
What Makes a Place Right to Keep Your Emergency Savings?
Before looking into what places are not a great option for storing emergency funding, it may be helpful to understand what qualities you should look for in a suitable place. Here are a few qualities that ideal places should have when you store your savings:
- Easily Accessible—The whole point of emergency funding is to provide you with money in case something unexpected happens. For this reason, your emergency fund should be easily accessible.
- There is Some Kind of Return—Inflation can have a huge impact on what your savings do for you when you need them, which is why it important to store your savings in a place where they are able to grow.
- Low Risk/No Risk—The right places to store your emergency savings will generally be very low risk or have no risk involved. If you choose to store your money in a place that involves some risk, it is advisable to not use all your emergency savings for that.
- Help Your Future—Another great feature the right places will have, will be that they are an investment towards something in the future.
So now that you know a little more about the qualities that come with the different places to store your emergency funding, it may be easier to understand why some places may be more appropriate than others for that purpose.
A Few Places You Should Avoid When Storing Your Emergency Savings
Here are a few accounts that may not be a good idea to store your emergency savings in:
- A Checking Account—Having your emergency savings in your checking account may not be a good idea. The reason for this, is because it can be tempting for many individuals to spend their savings since they are in an account most use for everyday expenses.
- Standard Savings Accounts—Although this can be a good option for those who want to keep it simple, a standard savings account does not generally offer the same benefits that come with savings accounts that earn interest.
This is especially true if you are building savings at an important time in your life. If you are looking to reach those long-term goals, like buying a house, it may be time to upgrade from a standard savings account to a better way to save.
- Specialized Saving Accounts/Bonus Saving Accounts—These savings accounts usually have a very high interest rate associated with them, but a person must keep their money stored for an extended period of time before they can access it. This is not recommended for emergency funds because you should be able to access them as soon as you need to. However, these types of accounts are perfect when you are setting up any other kind of savings.
Another Common Way to Save, That is Not the Best Idea
Many people store their money via cash in their home. If you are someone who does this, it may be time to re-think that idea.
Keeping emergency savings in cash poses a huge amount of risk, there is so much that can go wrong. The money may be lost or stolen, weather damage could occur, and so much more. If something does happen, there is no proof or transaction history. Keeping your emergency funds at home may be too risky.
Additionally, your money is not doing anything for you when it is just sitting as cash.
A Few Wrong Investment Account Types You Should Avoid
An alternative to placing your money in an account, is to invest it. This way, while your money is being stored, it will grow. However, not all investment types are well suited for emergency savings. Here are a few investment accounts that could be wrong when allocating your emergency funds:
- Stocks—Although stocks may seem like a good idea to increase the amount of savings that you have, many experts agree that the stock market may become highly volatile. For this reason, it may not be a good place to keep your emergency savings.
- Crypto Assets—A newer kind of finance, cryptocurrency is almost impossible to track where the market it is going. Not to mention it is also very risky.
- A CD with Penalties—Although CDs (certificates of deposit) have low risk, the money you invest generally cannot be accessed for a long period of time. If you do access it because of a financial emergency, the penalty could be expensive.
- Hedge Funds—A hedge fund is an advanced type of investing. From stocks to crypto assets, hedge funds invest in everything. It is impossible to tell whether you will make a profit, and hedge funds are generally very high risk.
When trying to find a place to keep your emergency savings, you may be wondering if there are right and wrong places to store them. When storing your emergency savings, consider how important it is to access your savings, how much you want your money to grow, and if you can simply leave your savings untouched.