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  • Alex Mizerski

Where to keep your emergency savings in 2023



Beware of emergencies
Beware of emergencies


The best place to keep your emergency savings is in a high-yield savings account or a short-term certificate of deposit (CD) at a bank or credit union. These accounts typically have low risk and offer higher interest rates than traditional savings accounts. It is also a good idea to keep the account in a different bank or institution than your checking account so that your emergency funds are less likely to be accidentally used. Additionally, you should also consider keeping some of your emergency savings in cash at home, or in a safe place, in case of emergency when the bank is closed or inaccessible.


Pros and Cons of a High-Yield Savings Account:


Pros of a high-yield savings account include:

  1. Higher interest rates: These accounts typically offer higher interest rates than traditional savings accounts, which means your money can grow faster.

  2. Liquidity: High-yield savings accounts are easily accessible, meaning you can withdraw your money at any time without penalty.

  3. FDIC insurance: High-yield savings accounts are typically FDIC-insured, meaning your money is protected up to $250,000 in case the bank fails.

  4. Convenience: Many high-yield savings accounts can be opened online, and can be managed online as well, making it easy to access and manage your funds.

Cons of a high-yield savings account include:

  1. Limited transactions: Some high-yield savings accounts have limits on the number of transactions you can make per month.

  2. Minimum balance requirements: Some high-yield savings accounts require you to maintain a minimum balance in order to avoid fees.

  3. Limited branches: Some online-only banks may have limited branches, which could be a problem if you prefer to bank in person.

  4. No check-writing capabilities: High-yield savings accounts typically do not come with check-writing capabilities.

It is important to consider these pros and cons, and compare them to your savings goals and needs, before opening a high-yield savings account.


Pros and Cons of a Short Term Certificate of Deposit (CD):


Pros of a short-term certificate of deposit (CD) include:

  1. Guaranteed return: CDs typically offer a guaranteed return on your investment, with the interest rate and maturity date set at the time of purchase.

  2. Low risk: CDs are considered a low-risk investment because they are FDIC-insured and the return is guaranteed.

  3. Forced savings: CDs have a fixed term, usually ranging from a few months to a few years, which can be a good way to save money for a specific goal or future expenses.

Cons of a short-term CD include:

  1. Limited liquidity: CDs have a fixed term, and if you withdraw your money before the maturity date, you will likely incur a penalty.

  2. Lower returns: The interest rates on CDs are typically lower than other types of investments, such as stocks or bonds.

  3. Opportunity cost: By locking your money into a CD for a fixed period, you may miss out on higher-yielding investments that become available during that time.

  4. Penalty for early withdrawal: CDs typically have a penalty for early withdrawal, which can eat into your returns if you need to access your money before the maturity date.

It is important to consider these pros and cons, and compare them to your savings goals and needs, before investing in a short-term CD.


Why keep your emergency savings in a different bank:


There are several reasons why it may be beneficial to keep an emergency savings account at a different bank than your checking account:

  1. Separation of funds: Keeping your emergency savings at a different bank can help you avoid the temptation to use that money for non-emergency expenses.

  2. Insurance protection: Some banks may offer additional insurance protection for savings accounts, which can provide an extra layer of security for your emergency funds.

  3. Better interest rates: Different banks may offer different interest rates for savings accounts, so shopping around may allow you to find a higher rate for your emergency savings.

  4. Diversification: Keeping your money in multiple banks may diversify your risk in case one bank fails.

  5. Accessibility: Having your emergency savings in a different bank or account can give you the peace of mind that you will still have access to your money even if you lose your debit card or get locked out of your checking account.



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