Inflation is at its highest level in 40 years, but that doesn’t mean you shouldn’t have money in your savings account for emergencies, say the pros. “One of the main reasons is the relative security that the savings account offers for your money. Although the money may not grow significantly, it is also not subject to market risk. and for something like your emergency fund, availability is everything,” says certified financial planner Zack Hubbard of Greenspring Advisors. Or as Digit personal finance expert Snigdha Kumar puts it, “A savings account can be a great tool in your financial repertoire when you need safe and secure short-term savings.” Indeed, savings accounts are typically FDIC-insured up to $250,000 – and some now offer an APY by more than 0.50% (the average is still only 0.06%).
The traditional advice is to keep 6 to 9 months of essential spending in an emergency fund, although some pros say you can tweak that a bit. “No matter what interest rate is available, everyone should aim to set aside $2,500 in an emergency savings account that they will only touch when absolutely necessary,” says Charles Lattimer from financial wellness company FinFit. And as Chanelle Bessette, banking specialist at NerdWallet, recently told MarketWatch Picks: “A small emergency fund of $1,000 should cover most minor emergency expenses, like buying new car tires or having to travel for an emergency trip, such as taking care of a family. member in the hospital or to attend a funeral.
So what’s your savings number? It depends on your goals, say the pros: “Inflation is also a great example of why saving money in the short term is valuable but emotionally challenging,” says Brian Walsh, senior director of the financial planning at SoFi. When inflation is significantly higher than the APY on your savings, you begin to lose purchasing power, and that’s why it’s essential to take a step back and think about your goals and assign a purpose to them. your money, Walsh said. “Then you can keep the right amount of savings and invest the rest for the long term to reap the benefits of both approaches,” says Walsh.
How to get higher returns on your savings
“Look for the higher returns available in an online savings account,” says Greg McBride, chief financial analyst at Bankrate. “Interest income can be 10 times what you would otherwise earn at your current bank.” Oxygen offers four different consumer savings options with APYs of up to 3.00% on the first $20,000 in balances, and SoFi checking and savings accounts come with 1.25% APY assuming you have a direct deposit. “Wealthfront, Chime, Discover, Lending Club and Liberty Savings Bank are examples of fintechs and banks that offer savings interest above 0.06% [the current average savings accounts are paying]“says Kumar.
Ken Tumin, founder of DepositAccounts.com, said that as of March 1, online savings accounts at online banks had an average yield of 0.49%. “Several online banks have recently increased their online savings account to levels above this average. These include Comenity Direct with 0.75%, My Banking Direct with 0.77%, Quontic Bank at 0.65%, Live Oak Bank at 0.60% and Synchrony Bank at 0.60%,” explains Tumin. Wherever you decide to put your money, Hussein Ahmed, CEO and Founder of Oxygen, says, “Make sure the savings account is protected by FDIC insurance.”