First thing is first, you don’t want to stash your cash in your mattress, bury it in your backyard, or keep it in a safe. There are many financial vehicles that provide secure methods to keep your emergency fund. Your money is loosing value every single day due to inflation rates. Lets talk about a Certificate of Deposits and high-yield savings account as common options most consider. I promise you that your money will be safe and it will earn interest, as a plus!
A CD and a high-yield savings accounts are designed very differently and should be leveraged for different purposes. Here are some features you need to review as you prepare to shop between both types of accounts:
High-Yield Savings Accounts
High-yield savings accounts are provided by online banks. These types of accounts are able to compete with the traditional bank savings and money market accounts because they don’t have the overhead of a brick and mortar branch.
The accessibility of these accounts is pretty simple. Just make sure that the account connects well with your current bank. What you’re looking for is an easy and fast process to transfer funds between both accounts in case you need it for an emergency.
The interest rates can’t compete with the long term CDs but they are way better than your traditional savings accounts. A 1% Annual Percentage Yield (APY) is way better than a measly 0.01% (the rate offered by my personal bank).
Most high-yield savings accounts don’t require minimum deposits. As for the additional terms, these accounts have terms when it comes to monthly transactions, processing requests for transferring funds, and setting up beneficiaries.
Certificate of Deposits (CD)
A CD is a savings product that offers a higher interest rate compared to a high-yield savings account. With a CD, you are locking your funds and are restricted to accessing it until the maturity date. The funds are secured since it is insured by the FDIC but the accessibility is limited. If you want to make a low risk investment and you don’t plan to use or access the money immediately, this is a great choice.
In the event that you needed to access the funds, you could withdraw the money but there will be steep early withdrawal penalties and you can forfeit the interest you’ve earned. In addition, interest rates will vary upon the terms you’ve selected and if you meet minimum requirements. For instance, a $1,000 CD for 6 month terms will offer a lower interest rate compared to a $25,000 CD for 5 years.
Therefore, the more commitment and larger deposit will equal to a higher rate of return. If you do choose a CD, close your eyes and forget that money is even there until you’ve reached the maturity date.
For the purposes of selecting a savings product for your emergency fund, the high-yield savings account is the way to go! It’s a simple product, it offers great accessibility and the interest rates are way better than your traditional brick and mortar banks.
We believe that everyone should have at least one high-yield savings accounts for their emergency fund. So, stop stashing your cash in the mattress and go open an account today!