Kathryn B. Hauer, CERTIFIED FINANCIAL PLANNER (TM)
@KathrynHauer
Hi! It is great that you have saved so much for your emergency fund! Your emergency fund money should be “liquid,” which in financial terms means accessible when you need it. It’s recommended that people have an emergency fund of 3 to 6 months money to cover essential expenses. For example, imagine a married couple live in a small town and work at the same plant. It closes suddenly and both earners are out of work with little chance of quickly finding another job in the little town. They might be able to drop cable, sweat out the summer with no AC, and eat more hot dogs, but the couple still needs to meet their basic monthly bill – mortgage, car payments, student loan debt, and other basic living expenses. They’d use the money in their emergency to tide them over until they found new jobs or moved to a place with a new job.
We never know when catastrophe will strike, so we want to make sure we keep emergency fund money liquid or easily available in a bank or maybe a 3 month CD. If that money were invested in mutual funds, stocks, bonds or other illiquid investments, the investor might be forced to sell those investments right away and maybe take a loss if the market were down. If all the funds were tied up in real estate like a home or land, the sale would take at least 6 weeks if a buyer even could be found, and depending on the real estate market at the time, could force a loss.
You are wondering if it makes sense to look for a high yield/high interest account for your $12,000. I think it does. Right now we are in a very low interest environment, so you aren’t going to get “high” interest at any liquid account. But the 1.05% you’ll get in high yield account at online banks like Ally, Capitalone360, Synchrony Bank and others will earn you more than the 0.4% you are likely to get at a regular bank. It’s not going to make you rich, but it will bring in more money, and more is always better! It’s not going to make you rich, but it will bring in more money, and more is always better! I use 50 cent coupons, so if it's not too much of a hassle for you to set up one of those accounts, it's probably worth it.
Good luck to you and thank you for taking the advice of every financial planner out here begging our beloved clients to have an emergency fund!!!! That and the big serving of corn casserole I will be enjoying at my Thanksgiving dinner tomorrow has warmed my heart.
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