EARNING MAXIMUM RETURNS ON YOUR EMERGENCY SAVINGS
Last week we talked about the need for having a minimum of six months expenses in your emergency savings. The partial government shutdown, which began Dec. 22, 2018, is unfortunately still going strong (THE KIDS IN DC CANNOT PLAY NICE). As you begin to grow your emergency savings you will need a plan for to put those hard earned dollars to work!
Be sure to open separate account(s) to reduce temptations to buy more “wants”. Below are some choices for that money.
High-Yield Savings Accounts
Currently, High-Yield Savings Account can earn about two percent per year in interest. Placing $10,000, in this account can earn you and extra $200. I know you are saying is that all! What do you currently earn on your bank accounts? Take a look today? High-yield savings accounts offer a significantly higher yield versus regular savings accounts. And these High-Yield Savings accounts carry fewer maintenance fees than regular savings accounts. You can find High-Yield Savings Account at your local banks. You will most likely find better interest rates at an online bank. Some online banks let you start saving with as little as $1.00 deposit.
Here are some of the best online savings accounts for 2019:
• American Express National Bank — 2.10% Annual Percentage Yield (APY).
• Marcus Savings by Goldman Sachs — 2.25% APY.
• CIT Savings Builder — 2.45% APY.
• Barclays Online Savings — 2.20% APY.
• Synchrony Bank High-Yield Savings — 2.20% APY.
• Ally Online Savings — 2.00% APY.
Money Market Accounts
Unlike regular savings accounts, Money Market Savings Accounts, (again found at your local bank) may come with a debit card, check-writing privileges or both. That makes a money market account convenient if you need to make an emergency purchase or write a check to cover an unexpected (car repair, new furnace, etc.) expense. Money market accounts normally require a higher minimum deposit to open. Some money market accounts require $2,500 or more to open an account. This account will be an option as you continue to grow your emergency savings dollars.
Best Money Market Accounts: Bank Details
• CIT Bank: 2.45% APY, $100 minimum deposit.
• Sallie Mae: 2.20% APY, $0 minimum deposit.
• TIAA Bank: 2.15% APY, $5,000 minimum deposit.
• State Farm: 2.25% APY, $1,000 minimum deposit.
• Capital One: 2.00% APY, $10,000 minimum deposit.
Certificates of Deposit (CDs)
A certificate of deposit is a time-specific savings account, that normally has $0 (zero), maintenance fees. The time frame can range from 30 days up to 10 years, depending on the CD term you choose. The longer the term the higher the interest rate. Once your CD term ends, your CD matures and you can withdraw your initial deposit, along with the interest earned. CD accounts will normally produce a higher yield versus a traditional savings account, but you may face a penalty if you have to withdraw the cash early. However, there are banks that offer no-penalty options (with lower interest rates), giving you the option to withdraw the money without penalty in an emergency. Be sure to review all terms before making a deposit.
Best CD Rates Comparison as of January 14, 2019
• Capital One Bank: 1 year – 5 years, 2.70% to 3.10% APY – $0 Minimum Deposit.
• Goldman Sachs Bank: 6 months – 6 years, 0.60% to 3.15% APY – $500 Minimum Deposit.
• Synchrony Bank: 6 months – 5 years, 1.00% to 3.10% APY – $2,000 Minimum Deposit.
S&P 500 ETF
This is a riskier alternative and should only be used when your emergency savings exceeds the recommended six months of expenses. Just remember you are taking a risk, as the market goes up and down (recall 3rd quarter 2018). Playing the stock market entails a higher degree of risk compared to just depositing your emergency cash in a savings account, but there is the possibility for a higher rate of return. Allocating some of your emergency savings into an S&P 500 ETF allows you to keep some cash liquid while potentially gaining higher returns on the other portion. With today’s accounts accessible by the web or apps you can sell shares in an S&P 500 account and transfer the cash to your checking account in a matter of days.
Treasury Bills and Savings Bonds
Treasury bills (T-bills) and Savings bonds are another alternative savings strategy for some of your emergency cash. When you invest in T-bills, you are essentially buying the bills at a discount, and once they reach assigned maturity date you can cash in on their full face value. Treasury bills offer maturity terms ranging from four to 52 weeks, and the minimum amount you can start investing with is just $100.
Savings bonds are traditionally thought of as a long-term investment, but Savings bonds offer a little more flexibility. The shortest period of time you can own them is one year and you only need $25 to get started. If you hold on to the bonds for at least five years, there is no redemption penalty, but if you cash in early, you forfeit the last three months of interest earned
COMBINATION OF THE ABOVE
You can deposit some of your emergency cash to one or all of the above choices. This gives you multiple options for covering an emergency.
As we have seen from the ~800,000 people impacted by the partial government shutdown, those without adequate emergency savings are in a crisis mode. How long can you survive without an income? How secure is your job? What if????
The most important first step is to build up your emergency savings to a minimum of six months of expenses. As you build up these funds you can research the best of the above options and pick the one or ones that work best for you.
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I am a proud nerd (my beautiful wife and daughter told me so) investment and finance blogger, with University Rutgers, MBA and Harvard University, Advanced Management.
I am a successful investor in equities and real estate and happy to share my personal finance and investment lessons learned with you. I am NOT however, a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or financial advisors.