Emergency Funds Should Still Be a Source of Income
Having Money Sitting There? What Should You Do
If you are lucky enough to have saved for an emergency fund, then great for you. I applaud you with the utmost respect. Not many people have accomplished what you have, and have secured their financial future should something terrible happen.
But because you have saved enough money to hold you down should something happen, doesn't mean you are doing it in the right way. Emergency funds usually amount to a sizable pocket of money, but if you have it sitting in an account that is doing absolutely nothing for you, then you are losing out on an opportunity cost that you may have overlooked.
Make It Work for You
The best thing to do with your emergency fund is to set it up in a Money Market account at your current financial institution. Money Market accounts are great as they are a mix of savings accounts, checking accounts and certificate of deposits. What this means for you is that, given you put your emergency fund into a money market, you will earn a much higher percentage on that money in interest than you would with your everyday savings or checking account. It won't be as much as a Certificate of Deposit (CD), but it will be relative close. The two positives associated with the Money Market account are higher interest rates and flexibility of credits/deposits into the account.
Money Market accounts would be your best bets in terms of storing a pocketful of cash for a rainy day fund. You will earn the most with this account, while still keeping the flexibility to withdraw it when needed.
For more information on the different accounts and how to make the most of each, check out our book getting2zero: Debt Free with a College Degree.
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