A well-stocked emergency fund is there to shield you against the bad things in life that might surprise you. The bigger this savings stash is, the more it can protect you from unexpected expenses and wage interruptions.
This supports the age-old saying that variety is the spice of life. The thing about variety, though, is that it includes everything — from the excellent stuff to the worst of the bad stuff.
That’s why high-yield savings accounts have become so popular recently. People are squirrelling away their hard-earned dollars in these HYSAs to maximize their savings.
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Why is an Emergency Fund so Important?
An emergency fund provides the underpinning for your financial well-being. It serves as a safety net, providing security as you live. If something happens — you chip your tooth and need to see an emergency dentist — you can feel good knowing you have some savings set aside to help you with this bill.
An emergency fund can also help you navigate life’s toughest issues, like a sudden job loss or looking after a sick loved one.
Some Eye-Opening Facts about the Emergency Fund
Despite how valuable an emergency fund can be, few people can boast about owning one.
CNBC reports that 56% of Americans could not pay for an unexpected expense that costs $1,000 or more. That means more than half of people couldn’t afford a surprise grand, even if it were an essential auto repair or medical expense.
This is more or less in line with the Federal Reserve’s 2021 Report on the Economic Well-Being of U.S. Households, which revealed 32% of adults would struggle to cover an unexpected expense of $400 without borrowing or selling something.
Should You Borrow Money in an Emergency?
If you don’t have savings when a $400 expense arrives at your doorstep, you can apply online today for a personal loan. This loan may give you enough cash for this unexpected $400 expense if approved.
In most cases, you won’t have to pay back this entire loan upfront at a later date. Instead, many lenders let you pay back what you owe in instalments, giving you more time to drum up the funds.
Online loans can provide a lifeline during challenging financial situations. They offer a quick and convenient way to bridge financial gaps in your budget when you didn’t anticipate an unexpected repair or expense.
That said, they don’t provide the perfect solution for every person or every financial situation. Only an emergency fund provides that kind of universal support.
Why Should You Investigate High-Yield Savings Accounts?
When most people talk about emergency funds, they talk about how big it should be — three to six months of living expenses is the golden rule. But few people mention where you should put all that money.
A high-yield savings account can be a game-changer for savers because it earns more than the average bank account.
Interest isn’t just something you have to worry about when borrowing money. It’s also something you earn on deposits. Essentially, your bank pays you interest to keep your money with them.
Generally speaking, a basic savings account earns paltry interest on the dollar — about 0.33% — so you won’t make much money in a year.
On the other hand, a high-yield savings account may earn 4% or higher — 10 times that of the basic account. Since these earnings compound each month, you could earn more than you realize without lifting a finger.
Tips to Open a High-Yield Savings Account
A high-yield account isn’t always easy to find. Here are some tips to keep in mind while you go on the hunt for the best rates:
- Research Financial Institutions: You shouldn’t be afraid to start your search with these basic words: high-interest savings account. However, you should confirm these results include reputable financial institutions with FDIC insurance.
- Understand Account Terms: Read and understand the terms and conditions of the high-yield savings account. You don’t want to transfer your money to something with restrictions on how to use it, so be on the lookout for account minimums or withdrawal limits.
- Monitor Interest Rate Changes: Interest rates can fluctuate rapidly, so the account that once earned you a lot of money may not have much to offer you. If you notice a significant drop, consider exploring other banks to maximize your savings potential.
An emergency fund is only helpful when it’s full, and what better way to top up your savings than with a high-yield account? It earns more interest on the dollar than basic alternatives.
By making this one simple switch, you stand to save more in a year without changing any other financial habit.