In the current interest rate environment, it is a good idea to shop around for the best savings rates when deciding where to park your emergency funds. As the graphic above suggests, an emergency fund is an account that contains cash that is liquid (easy and quick to access) so that it can be used if something unexpected happens and calls for some money quickly.
An emergency fund should be at the top of the list regarding the order that you should fund your financial accounts. Amazingly, most Americans say that they wouldn’t be able to pay off a $1,000 emergency expense if it ever came up. Almost as amazing is for those fortunate enough to have an adequate emergency fund, about 70% of them keep their emergency fund in their regular checking account, earning zero percent interest or close to it.
Yes, it does take a little effort to find a savings, checking, or money market account that pays a respectable interest rate, but it can be well worth it. There are money market account (MMA) rates near 5.5% right now, far better than the current average savings account yield of 0.08%. For example, $30,000 in an MMA yielding 5% will earn $1,500 in interest annually, versus $24 in the average savings account. That’s not bad for doing a little leg work.
A quick search on Google will give you a ton of options for both online and brick-and-mortar bank rates. Here are two that I like to use:
- Bankrate – https://www.bankrate.com/banking/money-market/rates/
- Forbes – https://www.forbes.com/advisor/banking/money-market-account/best-money-market-accounts/
It’s important to consider other factors besides just the interest rate when choosing a money market account, such as minimum balance requirements, monthly fees, and ATM access.
Please comment or send an email if you have any questions. Thanks!
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassemanagement.com
