Inflation has been no mystery over the past few years to those in the U.S., but many are questioning how long it’s here to stay and the impacts it will have on the economy.
Presumably, the hardest hit of all in the last year or two has been small business owners and entrepreneurs, where 67% feel that inflation will damage their ability to recover. If you’re still holding on to an emergency fund or in the process of building one and you’re looking to stay afloat the rising costs, you’ve come to the right place!
Don’t have a designated emergency fund but your interest is peaked? Let’s break it down: An emergency fund is a type of savings account, aside from checking, that you should set aside for well…an emergency! This could be for that rattling noise in your car you’ve been avoiding or to help bridge a gap between jobs while searching.
We suggest an emergency fund of at least $1,000, then building it up to 3-6 months of expenses. The purpose of the fun is to have a reasonable amount of cash set aside that is liquid, or in simpler terms, available immediately if necessary.
Our top picks for stashing an emergency fund are high-yield savings accounts, money market accounts, or CDs.
First, high-yield savings accounts (HYSAs) are similar to a regular savings account but with the perk of higher interest rates. The current average percent yield (APY) for these accounts is around .50% though the national average is a measly .07%.
Second, money market accounts (MMAs) are a hybrid of checking and savings, but sometimes with more restrictions such as transaction fees or a balance minimum. Due to these requirements, the APY tends to be on the higher side and you may also receive a debit card linked to the account for ease of access.
Third, certificates of deposits (CDs) generally offer the best interest rates of the 3 options, but are the least liquid, as your money is tied up for a set time period. The longer you don’t have access to the money, the more interest will be paid.
As you can see, interest rates aren’t that notable, at least for now. Don’t stress too much about maximizing ROI on an emergency fund as it’s meant to be a safety net if you need it. If you have an emergency fund, you’re already ahead.
Notes the Federal Reserve, “59% did not have emergency savings that could cover 3 months of expenses in late 2019, and nearly 4 out of 10 either could not pay all of their monthly expenses in full or did not expect to be able to do so if faced with a modest emergency expense.” A global pandemic didn’t help.
Stay in front of it now so inflation doesn’t cut your future funds short.