Once you’ve made up your mind to begin building an emergency fund and you’ve set your savings goal, the next step is figuring out where to put it. Stuffing your extra cash under the mattress is a safe bet, but putting it in the bank or investing it generally yields a better rate of return. If you’re not sure where to stash your emergency savings, comparing the different options makes it easier to narrow down your choices.
1. High-yield savings account
Online banks are growing in popularity for a couple of reasons. For one thing, they tend to carry much lower fees compared to traditional brick-and-mortar banks. That’s a plus if you sometimes run into trouble with overdraft or it’s difficult to meet high minimum balance requirements.
More importantly, however, online banks typically feature higher rates for savings accounts and other interest-bearing products. At some traditional banks, the APY for a regular savings account may be as low as 0.01% whereas certain online banks offer rates ranging from 1 to 2%. That comes out to an extra buck or two you’ll earn for every $100 you deposit, which isn’t a huge amount but it’s preferable to mere pennies.
The one drawback of online banks is that you can’t walk into a branch to make a deposit, but there are some ways to get around it. You can build your emergency fund by using mobile deposit services for checks or scheduling recurring transfers from a linked account at another bank. If your employer offers direct deposit, you can elect to have part of your pay funneled directly into your savings, which guarantees that your balance keeps growing.