Whether we do it or not, we all know that we should have an emergency fund, right? At some point in our lives, there are going to be struggles that require a large cash reserve. If you don’t have that rainy day fund, you will most likely be grabbing for that credit card and paying for your lack of planning with interest!
For those of us that are building a large cash reserve, we quickly realize two things: (1) Our emergency fund has to be liquid (easily available and accessible), and (2) it’s most likely not going to earn much money, if any at all. Your safety stash is not meant to make you rich with interest – instead, it will make you rich with readiness. When you have the cash there, you know that you won’t get gouged with penalties and interest when you need to pay that money back to whatever source it was borrowed from.
So, our emergency fund needs to be easily accessible and it needs to be safe. Where can we put it so that it will at least earn SOMETHING, but we still have to option to take it out when we need it?
1) High-Yield Savings Account
Interest rates are at an all-time low, so you’re not going to make your fortune here, but earning 1% on $10,000 will still earn you $100 a year. That’s better than nothing. I suggest that you take a look at some reputable online savings accounts (check out Discover). Their overhead is low, which means they can offer better rates than the traditional banks.
2) Money Market Accounts
This is similar to a high-yield savings account, but it’s a little more strict, and therefore should return better earnings. You don’t have the freedom to withdraw from this account as many times as you want (typically, it’s limited to 5 withdraws or less per month), and there’s often a required minimum. Since this is your emergency fund though, you shouldn’t need more than 1 or 2 transactions a month, so it works perfectly with it’s main purpose. Check with your local banks and compare the rates before making your final selection.
3) Junk Coins
“What in the world are junk coins?” you might be asking yourself. Well, they aren’t junk in the sense of their worth, it’s actually the exact opposite. Quarter, dimes, half-dollars and the like used to be made almost entirely of silver. So today, these coins are worth about 20 times more than their face value (because of their silver content).
While I don’t suggest that you trade in all of your emergency fund dollars into junk coins, it certainly is quite liquid, and it also acts as a hedge against inflation (which seems to be looming around the corner). Discover if this method is right for you – don’t be afraid to read more on the topic. I’m sure there are plenty of books at the library that will go into far more detail on this particular topic.
Can you think of any more great place to stash your cash? Leave your comment below!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.