The minds of Americans may be lingering on to the fact that the stock market basically ended the year unchanged while interest rates on deposit accounts were rather disheartening.
Due to the unattractive prospects of profit-chasing, the focus turn back to the basic financial principle of establishing a trusted backup fund.
The S&P 500 fell just 0.04 point (or 0.003%) from the close of 2010 to the close of 2011.
The leading online savings accounts offered APYs that topped 1.00% APY for most of 2011. Certificate of deposit rates didn’t do so well either.
These figures represent a relatively flat movement in these popular avenues of money growth. It would not be surprising for many Americans to start focusing more on money preservation in the near-future since rates are not going to improve any time soon while the stock market continues to waver.
In the name of money preservation, the very first financial step that you are taught is: establish an emergency fund.
Due to the current financial conditions (and exploiting your upbeat attitude towards New Year’s resolutions), amassing a larger emergency fund is an assuredly safe move for the year. If you don’t have one yet, there’s more of a reason to get started on it.
The Cash Safety Cushion
Emergency funds are not set up for the purpose of growth, but for accessibility. It leaves wiggle room so that you do not have to resort to using credit cards and loans with highest borrowing rates.
This backup fund is most commonly held in a savings account to ensure liquidity in the event of a spontaneous expense.
Here are some savings accounts that make great homes for emergency funds:
|Bank||APY (as of 1/9/12)||Minimum opening deposit|
|Sallie Mae Bank||1.00%||$0|
|American Express Bank||0.90%||$0|
Three to six months of salary is the common rule of thumb when determining how big of an emergency fund to have.
Like with any savings goal, set up an automatic savings transfer to make it easy to stay on track.
Will you be increasing/starting your emergency fund this year?