Erase Debt - Emergency Fund in the Bank or Under The Mattress?
As part of your erase debt program you have been paying off debt and building up your emergency fund.
But where is the best place to keep that money - in the bank or under the mattress? Because of lousy interest rates there are those who feel that they might as well keep their cash in their house.
And while "under the mattress" is an old cliche, some are actually keeping it in their homes in safes, in bedroom night-stands, in the sugar jar, or in the kitchen drawer.
But is that the best way to manage your emergency funds? Keeping your money in your house does give you easy access in case of emergency.
And granted, with interest rates on savings accounts at extreme lows there i s really no financial benefit to keeping your money in the bank.
But there are reasons that keeping the money in your house may not be the best idea.
1.
A Lot of Cash.
Your goal is to save up 6 months or more of money to cover expenses.
That will probably be many thousands of dollars in your house.
Which probably is not such a smart idea especially if someone discovers you have all that money there, you could be the target of a robbery.
Or water or fire damage could literally destroy the money.
It is probably a good idea to keep some money, maybe a couple of hundred dollars, in your house for easy access.
But not your entire emergency fund.
2.
Leaving Some Interest On the Table.
Despite low interest rates, you are leaving some money on the table by keeping it in your house.
Even with low interest rates, you could make a little bit of money on your funds.
3.
FDIC Protection.
If you have thousands of dollars in your emergency fund, then the best place for it, at minimum, is in the bank.
The FDIC insures your accounts for up to $250,000 in case a bank goes under.
As pointed out in item #1 above, a fire in your home or other forms of natural disaster or robbery will not have the protection of the FDIC.
So if you have more than $500 dollars in your emergency fund, then do not keep it in your house.
Then where should you keep it? 1.
Savings Account or Checking Account.
Despite low interest rates, it is still the best place to keep your rainy day fund.
It's easily liquidated if needed.
No penalties for withdrawing the money.
And you can even write a check if you need to.
2.
Money Market Account (MMA).
Next best place is in a Money Market Account.
An MMA earns a little better interest than a savings account.
Many allow you to write a check.
3.
Ladder Certificates of Deposit.
Place your money in CD's that come due at different times.
First CD comes due at month 3, next one at month 6, and so on.
Not as liquid as the above choices but you can earn a little more interest if that is your desire.
Keep in mind if you have to dip into it for an emergency, you will pay an early withdrawal penalty.
But remember, the purpose of your emergency fund is not to earn money.
But to be readily available in case you need it.
And you want it safe so that it will be there for a rainy day.
It is not as safe in your house and under your mattress.
So build your emergency fund at a bank, erase debt, and create some wealth.
But where is the best place to keep that money - in the bank or under the mattress? Because of lousy interest rates there are those who feel that they might as well keep their cash in their house.
And while "under the mattress" is an old cliche, some are actually keeping it in their homes in safes, in bedroom night-stands, in the sugar jar, or in the kitchen drawer.
But is that the best way to manage your emergency funds? Keeping your money in your house does give you easy access in case of emergency.
And granted, with interest rates on savings accounts at extreme lows there i s really no financial benefit to keeping your money in the bank.
But there are reasons that keeping the money in your house may not be the best idea.
1.
A Lot of Cash.
Your goal is to save up 6 months or more of money to cover expenses.
That will probably be many thousands of dollars in your house.
Which probably is not such a smart idea especially if someone discovers you have all that money there, you could be the target of a robbery.
Or water or fire damage could literally destroy the money.
It is probably a good idea to keep some money, maybe a couple of hundred dollars, in your house for easy access.
But not your entire emergency fund.
2.
Leaving Some Interest On the Table.
Despite low interest rates, you are leaving some money on the table by keeping it in your house.
Even with low interest rates, you could make a little bit of money on your funds.
3.
FDIC Protection.
If you have thousands of dollars in your emergency fund, then the best place for it, at minimum, is in the bank.
The FDIC insures your accounts for up to $250,000 in case a bank goes under.
As pointed out in item #1 above, a fire in your home or other forms of natural disaster or robbery will not have the protection of the FDIC.
So if you have more than $500 dollars in your emergency fund, then do not keep it in your house.
Then where should you keep it? 1.
Savings Account or Checking Account.
Despite low interest rates, it is still the best place to keep your rainy day fund.
It's easily liquidated if needed.
No penalties for withdrawing the money.
And you can even write a check if you need to.
2.
Money Market Account (MMA).
Next best place is in a Money Market Account.
An MMA earns a little better interest than a savings account.
Many allow you to write a check.
3.
Ladder Certificates of Deposit.
Place your money in CD's that come due at different times.
First CD comes due at month 3, next one at month 6, and so on.
Not as liquid as the above choices but you can earn a little more interest if that is your desire.
Keep in mind if you have to dip into it for an emergency, you will pay an early withdrawal penalty.
But remember, the purpose of your emergency fund is not to earn money.
But to be readily available in case you need it.
And you want it safe so that it will be there for a rainy day.
It is not as safe in your house and under your mattress.
So build your emergency fund at a bank, erase debt, and create some wealth.
