Emergency
fund is an account set aside to fund immediate financial needs, such as medical
bills, job loss, or major home repair, among others. Having this kind of fund allows
you to have financial security since you have a safety net for your emergency
expenses.
Many
financial experts recommend to have at least three to six months of your income.
It is also advisable to have a separate account for this to avoid spending it.
Plus, it can be easily access to in case emergency happens.
However,
saving alone will not make your money grow. Plus, because of inflation, what
you save today may not have the same value three to five years from now. This is
why many people are considering to invest their emergency fund.
The advantage
·
Better
potential returns for your money
·
Achieve
your financial goal faster
The disadvantage
·
Potential
loss
·
Liquidity
Where to keep your emergency fund?
There
are different options when it comes to where to keep your emergency fund. You
can choose whether it is in a bank account or in an investment. If you opt for
an investment, it is important to learn the investment first since not all
investment vehicles are created equal. You should determine the pros and cons
of each investment option.
Here’s
the different options that you can have on where you can save your emergency
fund.
Checking account
Checking
account is one of the basic options you can have. You can choose to have one
with your current bank or you can find another. Make sure to look at the
possible interest rates of checking account you are considering.
Verdict:
Low risk and low potential return
High-yield savings account
One
of the safest options to put your emergency fund is the high-yield savings
account. Opting for this will enable you to easily access your fund when
emergency arises. Plus, the money you put here can potentially grow since it
pays high interest rates. When opting for this, consider these factors:
·
Initial
deposit required
·
Interest
rate
·
Minimum
balance required
·
Associated
fees
Verdict:
Medium risk, medium potential return.
UITF
UITF
is stands for Unit Investment Trust Fund. This type of investment enable you to
invest your money in a fund that managed by fund managers. You will earn when
the net asset value or NAVPU goes up.
However,
investing your emergency fund in UITF might be risky since there is an equity
fund in UITF. So, it is important to weigh the pros and cons of choosing UITF
as investment for your emergency fund.
There
are less risky options like balanced and bond funds. Just ensure that you study
these investment vehicles before putting your money on it. You can read more
about investment options here: https://www.ecomparemo.com.
Verdict:
High potential return, high risk
Key
takeaway
Investing
your emergency fund might be a good idea to allow you to earn a higher return.
However, you must have a knowledge on your investment that you are getting into,
since investing it might expose it to risk.