Where Should You Put Your Emergency Fund?

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Where Should You Put Your Emergency Fund?

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Putting up an emergency fund worth about 6 to 12 months of your monthly expenses can be a pretty impressive amount. Congratulate yourself because you have already saved enough money that will tide you through most financial crises. Should there be emergencies like an accident, car damage, or unemployment, you won't be running around like a headless chicken.

But that kind of money just put somewhere seems boring because it is just sitting there. Some also worry that inflation is also eating up the value of your emergency fund, which could supposedly harm you later on. If this is the case, then where should you put it? Should you put it in a mutual fund?

The short answer for that is a no. Mutual funds are investments supposedly there for the medium term. The value of these mutual funds can go up and down depending on the market. It is therefore very risky to put your emergency funds in this kind of vehicle. Your emergency fund is primarily meant to sit down just there so that you can have a highly accessible pool of cash that you can draw upon almost immediately.

It is quite more common and more advisable to just place your emergency money in a high-interest savings account or a money market account so that they also earn considerable interest. This amount could be lower than the inflation rate, but at least they still earn something.

Just remember that it may be slightly more difficult to put this money in these types of account compared to an ordinary savings account, so better put up a short-term emergency fund in these ordinary savings accounts for your perusal. The long-term emergency fund can then be used on these money market accounts because they earn more but could take a few days to liquidate.

Always remember that the primary purpose of your emergency fund is not to earn interest but just to stay there in case something goes wrong.

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Tags: • inflation • unemployment • crisis • expenses • emergency • savings accounts • inflation rate • money market • savings account • high interest • emergency funds • mutual funds • mutual fund • financial crises • emergency fund •

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