What’s your best option for an ’emergency’ fund?
If there’s one thing we can expect in life, it’s the unexpected. When that involves medical bills, house or car repairs, or redundancy, where would you find the funds to cover the emergency?
In times of financial difficulty, you might be tempted to rely on your credit card or an overdraft facility to get you through. These can both be useful for managing your day-to-day cash flow – but how could you benefit from keeping a rainy day fund in a high interest savings account?
We weigh up the options to show you why a high interest savings account may be a suitable financial fallback for your family.
A credit card
Credit cards are a quick and easy way to stretch the household budget to cover small, unexpected expenses. Some cards offer up to 55 days interest free on purchases, depending on when in your statement cycle you make the payment.
However, if your family emergency requires you to make a big purchase, remember that you will start to accrue interest if you aren’t able to repay the money by the due date. Likewise, cash advances typically carry higher interest rates and are charged from the day you withdraw the money.
There’s no question credit cards are convenient, as long as you’re in control of your budget and have the ability to make regular payments.
It can be a handy financial safety net to have in place, as you will avoid the inconvenience of declined transactions, as well as any dishonour and overdrawn fees.
You only pay interest on the money you use, although you may be charged an ongoing fee to have the funds available.
Overdrafts are best for covering short-term cash flow problems – for example, when a bill is due and you’re still a few days from payday.
A high-interest savings account
With Australia having one of the highest debt-to-income ratios in the developed world, it makes good financial sense to have some money put aside for a rainy day.
Possibly the best place to have an ‘unexpected event’ fund is in an account that holds your own money, costs nothing, and keeps growing of its own accord.
Some high interest savings accounts have no monthly fees and may offer special introductory rates or bonus interest under certain conditions – such as making limited withdrawals or minimum monthly deposits. These can act as good motivation to continue saving, so make them work for you.
The more you have in your emergency fund, the better. As a starting point, think about how much you’d need to buy a new fridge or pay for a root canal.
Keep growing your rainy day fund without any effort by immediately transferring over a percentage of any bonuses you receive, such as a tax refund. Or you could set up a direct debit to come out of your transaction account on payday. Use our Savings Calculator to see how your funds could grow over time with regular deposits.
With a high interest savings account, you’re in charge of how much is in your emergency fund at any time, and it will keep accumulating interest each month.
Life throws everyone an unexpected event occasionally. Having a steadily growing emergency fund set aside could make all the difference when you most need it.
Don’t get caught short. Search and compare high interest savings accounts now.