According to Vanguard, 60 percent of Americans don’t have enough saved up to last 3 months. I shudder to think of what the number is when it comes to 6 months.
Given that we’re 10 years past the last recession, we’re due for layoffs soon — No, I’m not one of the people who call for a market dip every year, but sometime during your working life, you will most likely be laid off. Plus with all the continued automation and outsouring in the coming years, people are bound to lose their job at least once.
People get laid off. It happens to the best of them.
“But Olivia), I’m a special snowflake and won’t get laid off. My emergency fund won’t get high returns and I need to FI/RE ASAP!”
Maybe you won’t get laid off, but what if you get appendicitis or some other emergency medical condition that costs a fortune? A car that needs a bunch of expensive parts fixed? Things happen, and it’s aways better to have an emergency fund just in case.
A good emergency fund is 6 months of your expenses. It might take 2-3 months to find a new job if you are a professional with the multiple interviews and the long vetting processes that corporations run today. During that time, you could also get sick and have to shell out money for the doctor, need to fix or get a new appliance or car, or any number of surprise events.
And, yes, you’ll probably get laid off or have your hours or salary cut in a recession, because in 2008, things did not go well, even for the best of companies. You just never know. GET AN EMERGENCY FUND!
Where should your emergency fund be held?
You should be holding your emergency fund in a savings account or no-penalty CD, which is essentially a savings account, but with psychological marketing to make you keep your money in there for longer. You want your emergency fund to make money for you, but not subject it to downturns in the market or withdrawal penalties. Equites/ETFs/bonds are subject to market fluctuations, and CDs without a penalty are subject to withdrawal penalties.
So, how does one make money by creating an emergency fund?
There are essentially two ways:
1). open a savings account with a bank for a bonus, and keep part of your savings account there. Usually bonuses range from $100-$500.
Here’s a few examples:
TD – Free $300 with $2500 of direct deposits within 60 days
PNC – Free $300 with virtual wallet $5,000 deposit
I go to the Doctor of Credit blog for all my bank bonus information. It’s accurate and frequently updated.
2). If you don’t want to keep track of where your savings accounts are (ie, not open it for bonuses), open a savings account with the highest deposit rate and keep all your money there.
What does your current savings account return? If you’re like most Americans, it returns almost $0 because the national average return for savings accounts is .06%. Nope, not a typo, that’s 6/100s of a percent. Tired of getting underpaid on your savings account? I was. I currently get paid 1.55% interest on my savings account with CIT bank.
CIT Bank offers 1.55% interest, which has a higher interest rate for a savings account than any other bank. It offers a savings rate that is TWENTY SIX TIMES the national average. CIT bank doesn’t have any fees, and the minimum to open an account is only $100.
Marcus by GS and Barclays both offer 1.5%, and Synchrony Bank and Amex both offer 1.45%. None beat CIT bank.
The online banks have been ramping up their interest rates for savings accounts in the last few months. Most of the high-paying savings accounts are of online banks with lower overhead (no retail space, no bankers/tellers, etc), which is how I’m guessing they’re able to offer such higher rates.
So, how many months of expenses have you saved up for your emergency fund? What’s the interest rate on your savings account?
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Olivia worked in finance and wants you to learn the secrets of financial independence. She’s on track to reach financial independence before 30, and she wants to teach you how you can retire in less than a decade as well.
She thinks everyone needs an emergency savings fund and uses CIT Bank . They have the highest yielding rate at 1.55% and only require a minimum of $100. No monthly fees or charges like other big banks!
Her favorite free investment plan is from Ellevest. Go to Ellvest and click “Get Started” to get yours.
Her favorite personal finance tool is Personal Capital, which allows her to track her spending, historical net worth, and monitor her credit cards. It’s an upgraded version of Mint, in her opinon.