Regardless of your financial situation, I think it’s important to always have some money set aside for a rainy day.
I’ve mentioned it before but it’s worth noting – sometimes life throws you a curveball and you need cash right away. Whether it’s an urgent car repair, unexpected job loss or family emergency – they all require money and sometimes it’s needed on short notice.
Keys to an Emergency Fund
I think an emergency fund needs to have the following attributes:
- Liquid. When something unexpected comes up, you’ll likely need the cash right away. There’s no point investing it into the markets or putting it anywhere else you won’t be able to access it within a short period of time
- Low risk. I think an emergency fund shouldn’t be invested into anything remotely risky because there’s a chance you’ll lose the principle through market fluctuations, and you could lose big if you need the cash right away (and sell for a loss).
- Easily Accessible. There’s no sense in investing your emergency savings in a fund that can take weeks for a withdrawal. The cash needs to be accessible on short notice when it’s needed.
An emergency fund should also be built into your monthly budget. Setting aside money every month for an emergency ensures you won’t have to borrow if/when something comes up that requires cash right away.
But what do you do with the cash that makes up your emergency fund, and how can you make sure it’s set to grow in the future?
Here’s a few simple ways I grow my emergency fund and how you can too.
There have been a few good offers lately from banks looking to gain new customers. The money you set aside for an emergency fund can easily be used to take advantage of these offers.
A couple months ago I took advantage of an offer from a local bank offering $350 cash for a new account. The minimum was $2,500 which was perfect because it was already set aside in my emergency fund. The money was already in my account and I wasn’t planning on spending it, so why not put it to work so it can continue to grow?
Bank offers usually come with some fine print which is important to look at before signing up. There’s usually an account minimum balance (to avoid bank fees) and you’ll need to either move your monthly pay over or 1-2 monthly bill payments.
Related: Things I Refuse to Pay For
It took less than 30 minutes to move my cable bill and gym membership over to the new account. I spent about one hour meeting with the bank, setting up the account and switching my monthly payments over.
The nice thing about bank offers is that the cash is still available; it’s just at a different bank. If I needed it for an emergency I could access it immediately.
My time was well spent – I’ll earn a return of over 10% on my cash and still have it available in case of an emergency.
High Interest Savings Account
Another easy way to put your money to work for you is by putting it into a high interest savings account.
This option is great for anyone who doesn’t want to do the legwork associated with a banking offer or just wants to have their cash earn a steady rate of interest over time.
The interest rates are low but they add up over time, and with the option to put your cash into a TFSA account the interest won’t be taxed.
Tangerine is now offering 2.1% interest on new accounts for the first 6 months. I have an account at Tangerine and use it as part of my emergency savings. I can view the account anytime online and I don’t pay any bank fees.
They’re also offering $50 in signup bonuses when you use my Orange Key: 42077379S1.
Click here to sign up for a new account and use the Orange Key (42077379S1) to get the $50 signup bonus.
Conclusion: emergency fund savings need to be easily accessible, low risk and liquid. Banking offers and high interest savings accounts are two ways to grow your cash and make sure your money is working for you.