If you want your emergency fund to help you through tough financial times, it’s best if you don’t store it in these five places. Here’s why:
1. At Home
A jar by the door, a piggybank, or under the mattress — these household locations might work for your spare change, but they should never hold your emergency fund.
Why? Primarily because you’re more likely to spend it. When money’s tight, or you know you’re just shy of a dollar for bus fare, you might take what you need on the way out the door. All that skimming can catch up with you, leaving you with less money in an emergency.
2. A Basic Savings
A basic savings account is a step up from a piggybank at home — but just barely. It makes it harder for you to skim off the top for non-emergencies. However, it’s not the most effective place to earn interest.
The average basic account earns a paltry 0.08%, a sliver of today’s inflation rate. That means your money will lose value the longer it sits there.
3. A Termed Investment
You can earn a higher interest rate by investing your emergency fund in a GIC (guaranteed investment certificate), bonds, and registered retirement plans. These accounts usually outpace inflation, but they do so in exchange for a guarantee you’ll keep your money in them for a specific time.
Ranging from a few months to a few years, maturity dates may not coincide with your emergency. You may need to withdraw your savings before your term ends, resulting in heavy fines.
Depending on your contract, savings amount, and maturity distance, it might be cheaper to borrow money than pay these fines. If you don’t already have a line of credit in your arsenal of financial tools, you can check the going rate for this product online.
A lender like Fora makes it easy to check these details by browsing their help center, which is complete with FAQs, a blog, and educational resources. You can compare Fora to other online lenders to see how the cost of borrowing in general compares to paying an early withdrawal penalty.
With the rise of cryptocurrencies like Bitcoin and Ethereum, you might think these cryptos are another way to earn a higher rate of return on your savings. And it’s true — your savings could potentially grow in these stocks. But they have just as much of a chance of shrinking in size.
Generally speaking, cryptocurrencies are considered speculative assets. You run the risk of your savings increasing or decreasing dramatically from day to day. If you have to withdraw your cash for an emergency on one of the bad days, you stand to lose a lot of money.
5. An NFT
An NFT or non-fungible token is a bad idea for your emergency fund for the same reasons as crypto. There’s also a great risk of fraud, theft, copyright issues, and even data corruption that erases your digital investment. Most financial advisors recommend you wait to invest in NFTs until you have a full emergency fund elsewhere and are on top of your retirement plans.
Put Your Emergency Fund Here Instead
Now you know where not to invest your emergency fund, let’s look at the best place to put it: a high-interest-rate savings account. This account is liquid — meaning it will be available in urgent situations—and it doesn’t rely on the markets to earn interest.
In other words, your savings won’t lose value if the stock market tanks. Instead, it will earn steady interest payments as high as 5% — the same as GICs — with none of the risks!