Online Savings Account: Building up an emergency fund it is always a great step. According to a survey, more than 70% of people in the United States do not have an emergency fund. This shows the poor aspect of financial planning in one’s life. Financial planning is one of the most important tools of life which should be appropriate and accurate. What financial planning can lead to a lot of pain, both financially and emotionally. Hence, people must consider building an emergency Corpus. In this article, we have explained how an online savings account can help you in making an emergency fund.
What is an Emergency Fund?
There are different theories of an emergency fund and in simple language, it means being prepared for any unforeseen situation that may appear from nowhere. It includes various expenses like sudden travel, job loss, environmental disaster or any other unforeseen condition. The goal of having an emergency fund is to reduce the risk of any situation which cannot be accounted for. Hence, having an emergency fund will help you in surviving through the bad times without asking for a loan from relatives or bank. But what amount should you exactly have in your emergency fund and should you keep it in cash?
Size of Emergency Fund
Most people are convinced by the goal of creating an emergency fund. But the very first question is that what should be the size of an emergency fund for an individual? Well, there is a methodology which helps in calculating the size of an emergency fund and it varies from people to people. Usually, the size of this fund should be equivalent to the monthly expense of 3 to 4 months. You can easily calculate the monthly expense and then build a Corpus which can help you to survive 3 to 4 months even if you lose out your job.
Where Should the fund be stored?
Many people say that they should keep the emergency fund stored as cash. But it is not a good idea to keep any amount of money as cash. Moreover, no other financial tools like mutual funds for fixed deposit account should be used for storing this fund. You should keep this sum of money in the online savings account. The online savings account is a great choice for storing the emergency fund because of liquidity. You can draw the front anytime you want without paying any penalty. Moreover, your emergency fund will also keep on appreciating because of the savings account interest rate.
Features of A Good Online Savings Account
Interest rate is something which matters a lot for emergency fund holders. Ideally, money should not be kept idle for even one day. Hence, an online savings account is the best choice as it provides an interest rate which is somewhat less than the fixed deposit rate. Hence, you must select an online savings account which has the highest interest rate in the market.
No minimum deposit
Many banks have now composed a new rule that a fixed amount of money should always be there in the savings account. However, an individual must use an online savings account which doesn’t have any minimum balance rule. Therefore, you can withdraw the entire fund in case of emergency.
Easy to use
A customer must always choose that savings account which has a well equipped online application. It must have all features and money transfer tools to ensure encashment as and when required.
Security’s perhaps one of the most important factors when it comes to money. Hence, the online savings account must be backed by a big bank which is credible. This is probably one reason why we recommend people not to keep cash at home.