What is your Emergency Fund in?
By Keith Bunn Jr.
March 11, 2012
I posted a blog last September where I said that I thought that the emergency fund is the most important part of a healthy financial plan and I meant it. I also briefly talked about putting the fund in a money market account, but I never explained why there and not someplace else.
A true money market account is found through an investment broker or financial advisor. I know all kinds of banks that say they have money market accounts but they are not true accounts. And to be fair, from what I’ve found, there isn’t much of a difference between the two kinds of accounts, so I would place it in either. Whichever one you choose, make sure it comes with check writing privileges and/or a debit/ATM card so if you are on a trip somewhere and your car breaks down, you have access to the fund. It is also ok to place your emergency fund in ordinary bank account as long as you keep it separate from your normal savings and checking accounts. This is so you don’t accidently spend it on a bill or at the mall.
Where NOT to put your Emergency Fund
The places you don’t want to put your emergency fund in are in a place where you can’t get to it quickly or where you’ll have to pay some sort of penalty or fee to us it.
Stocks, bonds, and mutual funds are a horrible place to put it in because it’s not easy to get to and if the market tanks again, you could lose it.
IRA’s or any other retirement account is another bad place because if you pull money out of those accounts before you’re 59 ½ years old, the IRS will consider it an early withdrawal and you’ll be taxed heavily.
And the same goes for CD’s (Certificates of Deposit). If you try to take money out of those accounts early, you’ll have to pay a penalty.
The thing is folks; your emergency fund is not an investment. It will not make you money. Your emergency fund is a self-made insurance policy that will protect you and your family from the small to somewhat big emergencies that life throws at you.
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