Most financial experts suggest keeping three to six months worth of household expenses in savings to help in case of emergency. But with record inflation, that task just got a lot harder to accomplish as virtually every safe place to put your emergency funds will not provide interest rates that keep pace with inflation. But that does not mean you cannot increase the rate of return on these funds.
Here are some ideas to reduce the impact of inflation on your emergency funds.
What you need to know: Not all savings accounts are created equal. When the Fed increases the interest rate, your savings account rate should also go higher…immediately. But this is not always the case. If your bank is slow to raise your savings rate, be willing to monitor and shift funds to a bank that does. Just make sure the funds are still FDIC insured and are kept at a reputable bank.
What you need to know: You can only purchase up to $10,000 in a calendar year and you must hold an I bond for at least 12 months before redeeming it. And although you can redeem it after one year, you’ll have to pay a penalty worth the interest of the previous three months if you redeem the bond within five years. While I bonds are great, if you need the funds for an emergency you must be prepared to pay the penalties for early redemption.
Please call if you have questions about how to reduce the impact of inflation on your emergency fund.
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