How much do you need in your emergency fund? There are several answers to this simple question, but the right solution for you depends on your specific circumstances. To start, you'll need a savings account. Once you have that, you need to come up with how much you spend on bills and necessary household expenses each month. Experts suggest saving three to six months' worth of expenses in your emergency fund. This amount can be beneficial if you lose your job, fall extremely ill, or need to support your partner while they find a new job, etc.
A savings account is necessary because, while not helping you build wealth, it still allows your money to remain safe, insured, and to be completely liquid. What makes a savings account the best? High Annual Percentage Yield (APY) and the fact that it’s federally insured are the main things you’ll want to look for. Few other factors will impact your choice outside of these two things:
- 1% or Greater APY- When looking for a savings account, individuals typically want to look for one with a standard interest rate of 1% or more. This ensures that your money grows more effectively over time, helping you maximize the potential of your savings.
- Insured by the FDIC or NCUA- It's important that your savings account is insured. This guarantees that your deposits are protected up to a certain limit in the event of institutional failure. For banks, deposits are insured by the Federal Deposit Insurance Corporation (FDIC), while credit unions are insured by the National Credit Union Administration (NCUA).
- No Minimum Balance- It's also crucial that your savings account is completely liquid and incurs zero fees. This can be extremely beneficial if you ever need to use it all at a moment's notice.