Where Should You Put Your Emergency Account?

Most people know it is important to have cash on hand for emergencies or a large planned purchase. In fact, I suggest having at least 3-6 months of expenses plus any big purchases you plan to make in the next 12 months on hand. The downside to cash savings is that it earns very little. However, with interest rates starting to rise, you should take a look to see what’s out there.

Online Bank Savings – Several online banks have become popular savings choices, with interest rates over 2% as of January 2019. You likely will have to open an account separate from your brick and mortar bank in order to get a higher yield.

CD’s – If you have planned purchases and can afford to tie up your money for 1-2 years, a CD may be the right choice for you. Because you usually don’t have access to the funds until the CD’s come due (without paying penalties), you may get 1-2% per year more than a traditional savings account.

Laddered Treasury Bills – Another option similar to CD’s would be to buy high quality short-term US Treasuries. While they won’t usually return as much as corporate bonds, they do provide a higher yield the longer out you buy, such as 3 years or 5 years.

With the last two options, CD’s and Treasuries, you could consider buying those in a Roth IRA if you are eligible to contribute to one. The income would be tax-free later and the contributions could be taken out tax and penalty free at any time because of the Roth IRA distributions rules (IRS, 2018).

Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.

1.IRS. (2018, February 21). Publication 590-B (2017), Distributions from Individual Retirement Arrangements (IRAs). Retrieved January 19, 2019, from IRS.gov: https://www.irs.gov/publications/p590b#en_US_2017_publink1000231074