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3 Jun 2019

EMERGENCY FUND ACCOUNTS

This post is mainly for our daily savings challenge members and readers who joined the monthly saving challenge. I thought I would easily compare various bank accounts that are better suited to emergency fund accounts. It seems it would take me forever to complete that kind of a task. I will just explain the account that I use for my own emergency funds. If your bank has a similar account, you might consider using it. If they have a better account, that is even better.
emergency fund accounts
Emergency fund accounts are meant for emergencies. No surprise there. There has to be a high level of liquidity in the account you choose with cash being available almost immediately. The account used has to earn interest. My bank has an account with both features. I use a 24 hour or one day notice account as my emergency fund account. You make a 24-hour notice to withdraw. It is very convenient for quick access to cash.

More on this money market account:
  • To open this particular account, one needs a minimum amount of R500. Hence, I thought most of our daily saving challenge members can use similar after keeping their two weeks savings of R560.
  • 5.25 percent interest (at the time of publishing) is not bad at all for the typical funds of between R2,500 and R25,000. I realise that most banks do not have good interest rates on savings and money market accounts. I have seen below 3 percent for accounts similar to the one that I use. 
  • Whenever I need funds, I make a notice a day before my withdrawal. It could be an evening before the day I need the funds. In this way it is not strictly applying the 24 hours waiting period.
  • I have not created a stop order for my funds to be transferred into this account, but this is possible and a good thing to do. This way one can automatically pay themselves first.
  • My emergency fund is capped at about R10,000. So, I will never get the 6.2 percent interest rate earned on a R50,000 balance. I am pleased with the 5.25 percent that I earn. 
  • It is important to choose an account with no monthly fees or commissions. Most of them do not. 
Please look at the features above and get an account from your bank that works in a similar fashion. Funds have to be available immediately or almost instantly. The account has to earn interest. Time value of money is a thing.
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