Best areas to invest your emergency funds
August 25, 2018
When you are planning your investments one thing to keep in a high priority is the decision of where you place your emergency funds. These are funds that you might not access on a regular basis. But when you need to access them, they should be easy to withdraw and utilize. So here are a few areas that are considered to be ideal choices for parking your emergency funds.
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Nothing beats the good old savings account!
Savings accounts are not even considered as investment options anymore as they fetch very tiny returns. But these are the easiest places in terms of the accessibility. You would be able to access the funds either through fund transfers or cash withdrawals or online transactions. Look for a savings account that fetches the highest rate of returns. One other factor to consider is the minimum balance criterion set for the account. You would definitely want a bank account that doesn’t carry a large minimum balance requirement. The penalty amount to be paid in case of the funds fall short of the minimum requirement is also a feature that cannot be ignored.
CDs or certificate deposits
These are known to be the most secure places to keep your spare cash. Given that the interests you receive with CDs are higher than the normal savings accounts these are great choices for emergency fund investments. There are however fixed tenures imposed on most CDs. Accessing your funds before the tenure ends would also attract a penalty. As CDs are popular there are a few banks that offer no-penalty certificate deposits these days.
Entering the stock market is not something that many people are confident about. But times are changing as there are various options for managed funds now available for those who are looking for adding a certain level of automation to their trading and fund management. Mutual funds these days have become very flexible in terms of the management of the funds, the tenure choices as well as the deposit amount. So you do not need a large capital to start investing in mutual funds. Passively, your funds keep growing as your funds are rotated in the market. You can easily exit from mutual funds as and when required.
Money market accounts
The money you invest in money market accounts is insured by the Federal Deposit Insurance Corporation. Along with this security comes the increased rate of interests. You would be able to easily find a bank that offers a high rate of interest along with other benefits for the account.
Few places to avoid when you plan your emergency funds
There are many more such profitable areas where you can invest your emergency funds. But below are a few options that are least suitable for this case-
- Bonds – as most of them come with long tenures and high penalties for early withdrawals.
- Stocks – though trading in stocks can be very profitable unless you plan to day trade or actively trade as a short-term trader stock market volatility might make it an unfavorable option for emergency funds.