Trying to understand personal finance can be intimidating. Sometimes, it seems like all you can do is pay your rent or mortgage every month, let alone worry about budgeting or emergency funds. And with so many ways to approach your finances and so much information out there, it can be overwhelming
At SkyOne, we want to see our members make informed decisions that will help them reach their financial goals. To potentially increase your earnings and put your money to work for you, take a minute to read about how different types of savings accounts can help you out of desperate situations.
Building an Emergency Savings Fund
An emergency savings fund will help you be self-reliant and take care of bills if you have an unexpected expense or your income is reduced or eliminated without relying on credit. The size of the fund should be based on your family size, expenses, and personal comfort level. Most financial planners recommend three to six months’ worth of living expenses be set aside.
Keeping savings in your checking account is usually not a good idea because you may be tempted to spend it prematurely. So where can you put it?Minimal investment risk and easy access are the most important aspects for an emergency fund –while a high return is nice, it is not a priority.
The essentials
You’ll want to make sure you keep your emergency fund parked in a safe spot and that you’re getting a return on your cash reserves. But, since this cash needs to be readily accessible in case you need it, you must choose where to keep your emergency fund wisely.
Consider these four different accounts that offer easy access and benefits:
- Savings Account: A savings account might be the best place to keep your emergency fund. You deposit your cash and make up to certain amount of withdrawals before possibly paying a penalty. Savings accounts are insured by the FDIC (for banks) or NCUA (for credit unions), so you won’t lose your money (limits apply) even if your financial institution goes out of business. But in exchange for total liquidity and stability, savings accounts usually provide a very low return. Pros: Earn interest on your emergency fund money. Usually little or no minimum requirement to earn dividends. Cons:Withdrawals and transfers out of the account are limited to 6 per month.
- Money Market Account: When deciding where to invest your emergency fund, don’t forget about money market accounts. These are similar to savings accounts in that they can offer higher yields, but they usually require higher minimum balances. Since money market accounts are easy to use, insured, and your funds can be withdrawn at any time, they can be a good option for your emergency savings. Pros: Higher dividends than basic savings, greater withdrawal flexibility than certificates. Cons: Larger minimum balance required.
- Certificates or CDs: Certificates are federally insured and typically offer a higher interest rate than savings accounts or money market deposit accounts. For example, SkyOne is offering two special high-yield certificates that can really boost your savings, but for a limited time only.What’s the catch with certificates? Certificates have specific “terms”, or a set length of time where the funds are inaccessible. If you withdraw money before the term is up or “matures”, you usually have to pay an early withdrawal penalty that will reduce the income earned on the certificate. This can be problematic for an emergency fund because you don’t know when you will need the money. Still, it may be a good choice if the additional interest you earn compared to other options is greater than the penalty.Pros: Higher dividends, no-risk, choose from different term lengths, and deposit amounts.Cons: Penalty for early withdrawal. Less accessible once the certificate is locked in.
- Individual Retirement Accounts: For people who want to grow potentially tax-exempt retirement income (in the case of a Roth IRA), investing your funds conservatively may help secure higher earnings—without taking on too much risk. As a SkyOne member, you’re entitled to a complimentary consultation. Our CFS* Financial Advisors are here to guide and support you in your financial planning.
Contact us for a complimentary consultation today.Pros: Decide whether you want to pay taxes on your money now or later, no minimum disbursement age.Cons: No employer match, low annual contribution limit.
Make your emergency fund work for you
Your emergency fund is there to protect you and your family from financial stress caused by unexpected expenses. While you’re not using it, though, your account needs a safe place to grow. Stashed in a savings account, certificate, money market account or even an IRA, your emergency fund can continue growing until the day you need it.
Ready to start saving?
We’re here to help. SkyOne has been meeting the financial needs of air transportation employees and their families for nearly 70 years. Besides our competitive rates on deposit accounts and loan options, we offer access to thousands of surcharge-free ATMs and Shared Branches nationwide, an easy-to-use mobile banking app, early arrival on your direct deposit, expertise in federal employee benefits, and a financial relief program for furloughed government employees. Contact ustoday to learn more or become a member.
*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal.Investment Representatives are registered through CFS. SkyOne Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.
Federal Seminars and ChFEBCSM, Inc. owns the symbol marks ChFEBCSMand ChFEBCSMlogo in the U.S., which it awards to individuals who successfully complete Federal Seminars and ChFEBCSM, Inc. initial and ongoing certification requirements.