If you don’t
think it matters where you put your emergency savings, think again. While
keeping your savings in your chequing account is better than nothing, it
doesn’t hold a candle to a separate savings account.
Opening a
separate account for your emergency fund comes with a lot of perks. Here are
some of them below.
Most banks offer
an initial sign-on bonus for opening a new account with them. You can earn as
much as $300 depending on the promotion. That will undoubtedly give a boost to
your goal.
It’s easy to
blur the lines between expendable cash and savings you mean to shelter when
they both coexist in the same account. If you forget how much money you’re
supposed to reserve for emergencies, you can dip into these funds to spend on
other things — bills, shopping trips, vacations, and meaningless items.
While you might
not notice your mistake right away, you can’t miss it in an emergency. After
all, those savings won’t be there to help you with an unexpected expense.
There’s no need
to panic in a situation like this. Lines of credit exist to help you when you
accidentally spend your savings. You may find a short-term solution in a lender
like Fora. As you can see when you visit Foracredit.ca, you can also apply for an
online line of credit. If approved, you can draw against your limit to handle
your unexpected expense and pay it back on time.
A savings account
makes it harder to spend your emergency fund without making it impossible to
access it in an emergency. Most savings accounts are fairly liquid, which means
you won’t have to wait to see your transfers come into effect.
Be careful when
shopping for a new account, as not all banks provide quick transfers. Some may
place holds or account limits that penalize you when you fall below this arbitrary
amount.
An account with
these limitations can put you in a tough spot — it can be like you don’t have
an emergency fund at all. In some urgent cases, you may have to rely on a line
of credit until your transfer goes through.
Most basic
chequing accounts don’t pay interest on your balance, so you won’t be earning
anything for keeping your emergency fund here. In fact, there’s a good chance
you could pay for a basic chequing account, as many of them come with monthly
fees, transfer limits, and other terms.
Savings
accounts, on the other hand, earn far greater interest. Even the basic ones
earn closer to 1% APY,
while you can score a high-yield account earning as much as 5% if you’re lucky.
In your search
for the highest yield, be careful not to lock in your funds in GICs
or bonds. Many banks provide higher returns with restrictions on when you
can withdraw these funds.
Where you stash
your savings can have a big impact on how easily you handle your next emergency
fund. If you don’t have a separate savings account yet, consider opening one
now.