Forty percent of Americans say they don’t have enough money saved up to cover even the smallest emergency expenses.
Without an emergency savings fund, unexpected expenses could cause people to go into debt and spend hundreds on interest fees.
I use a high-yield online savings account for my emergency fund, so it’s constantly growing until I need it.
What would you do if your car broke down tomorrow and the mechanic told you it’d cost $1,500 to get it up and running again? Or worse, what would happen if you got laid off tomorrow? How long would you be able to pay rent while unemployed?
If you don’t have a good answer to these hypotheticals, at least 40% of Americans are right there with you. In a survey done by the Federal Reserve Board last year, four in 10 Americans said they wouldn’t have the money to cover a $400 emergency without borrowing or selling something.
But resorting to debt to cover unexpected expenses only leads to more unpaid bills. The average interest rate on credit cards is now at an all-time high of 17.51%, making borrowing an extremely costly option.
The point of all this isn’t to send you spiraling into a panic attack. Rather, it’s to stress the importance of setting up an emergency fund.
An emergency fund is money you have saved in order to cover unexpected expenses. This means you have money on hand to cover anything from a medical emergency to car repairs to a month of overspending during the holidays. Essentially, building an emergency fund is the first step to not living paycheck-to-paycheck.
A high-yield savings account helps you get more from your emergency fund
While your regular savings account will work, a high-yield savings account will earn you significantly more money in interest. This helps you grow your emergency fund faster and gives you a nice little reward for saving your money instead of spending it.
High-yield savings accounts are just like regular savings accounts, except that they offer higher returns on your money. While a savings account with a large traditional bank might only offer a 0.01% interest rate, most high-yield savings accounts usually offer at least 2.00%, if not more.
High-yield savings account offers from our partners:
This is a huge difference. I switched over to a high-yield savings account at the end of last year, and I’ve already earned over $60 in …read more
Source:: Business Insider