5 Things to Look for in an Emergency Savings Account
Introduction
I've always been pretty good at saving money. Case in point: When the roof of my house turned out to be a complete disaster last summer, I didn't have to whip out a credit card to replace it. But the experience depleted my savings account and left me looking for ways to quickly replenish our rainy day fund. In other words, it was time to open a proper emergency savings account. Here's what I learned on my quest to find one.
Image Description: A person looking at their savings account balance on a smartphone.
1. Liquidity is Important
Low-to-moderate risk investment accounts like an individual retirement account (IRA) or 401(k) are great for retirement savings, but the funds in those accounts are practically on lockdown. You can make withdrawals, but for a steep price. IRA withdrawals made prior to age 59-and-a-half are generally subject to a 10% tax penalty. Certificates of deposit (CDs) also impose fees if you try to tap funds before the CD fully matures. Given you're looking to tap emergency savings for emergencies, you need to opt for an interest-bearing account that won't penalize you any time you take money out.
Image Description: Infographic explaining the importance of liquidity in an emergency savings account.
2. But You Don't Want Too Much Liquidity
There needs to be some friction so you're disinclined to tap emergency funds for a non-emergency. The easiest way to create some? Open a savings account with a financial institution you're not currently patronizing. That way, it'll take a few days for transfers to go through — which is helpful, especially if you're trying to curb impulse buys.
Image Description: Infographic showing the benefits of having some friction in accessing emergency funds.
3. Go APY Shopping
Even with interest rates on the rise, traditional banks aren't offering much when it comes to the annual percentage yields (APYs) on their savings accounts. Federal Reserve data puts the average national APY on traditional savings accounts at 0.09%. But high-yield savings accounts — essentially any savings vehicle that offers an APY close to 2% or higher — are making a comeback at small banks, credit unions, and online financial institutions. Policygenius’ partner Even Financial can help you compare current savings and money market account offers.
Image Description: Infographic comparing traditional savings account APYs to high-yield savings accounts.
4. You'll Need to Make the Minimum
Some savings accounts only allow you to earn the maximum APY if you make and maintain a minimum deposit. Be sure to check for these minimums when you're comparison-shopping APYs. Sometimes the highest return comes with a $10,000 caveat.
Image Description: Infographic explaining the importance of meeting minimum deposit requirements for higher APYs.
5. Check for Fees & Restrictions
Given this is a backup account, you don't need a lot of features, but it's still important to know what you are — or aren't — paying for. Some financial institutions charge savings accountholders for monthly maintenance, check writing, excess withdrawals, paper statements, wire transfers, and other incidentals.
Image Description: Infographic listing potential fees and restrictions on savings accounts.
Conclusion
Finding the right emergency savings account involves considering liquidity, avoiding too much liquidity, shopping for the best APY, meeting minimum deposit requirements, and checking for fees and restrictions. By doing so, you can ensure your emergency funds are easily accessible and growing efficiently.
Image Description: Infographic summarizing the five key things to look for in an emergency savings account.
