March 2, 2024

4 Major Worries about Emergency Funds

You want to have an emergency fund, but you haven’t taken any steps to put one together. You just have some concerns that you want to investigate before you start building that safety net. Are your worries justified? Read ahead to find out. 

1. What If Your Bank Fails? 

You’re worried that the bank where you’ll store your emergency fund will fail and all of your hard-earned savings will completely disappear. You don’t want to risk losing everything!

The good news is that you don’t need to worry about losing your emergency fund, even if the bank where you’ve opened your savings account decides to shut down. As long as the bank is insured by the FDIC, your deposits in your savings account should be covered up to a maximum of $250,000. In the case of a bank failure, the insurer should issue you the covered deposits as soon as possible.

2. What If Your Account’s Interest Rate Is Too Low?

You want your emergency fund’s balance to grow, but your current savings account doesn’t seem to make your balance budge at all. This is likely because you’ve opened a standard savings account with your bank. A standard savings account can have a fairly low interest rate. The annual percentage yield (APY) is likely to sit at 0.50% or lower. Naturally, this won’t help your balance grow very much. 

The good news is that you don’t have to stick with a standard savings account. You can switch to an account with a bigger interest rate, like a high-yield savings account. A high-yield savings account can offer an APY of 5%. So, moving your emergency fund into this type of account could be a great strategy to build your savings faster. 

3. What If You Make Too Many Transfers? 

Before 2020, the federal rule Regulation D made all savings accounts have a limited number of withdrawals per month. After making 6 withdrawals in a month, the accountholder would have to pay a fee. In April 2020, Regulation D was suspended, which gave banks the power to set their own withdrawal limits for savings accounts. Its withdrawal limit could still be 6, or it could be less. Check your account policy to see what your restrictions are.

What happens if you reach that limit? As long as you have enough funds sitting in the account, the transaction should still go through. The only problem with crossing this limit is that your bank could charge you an excessive withdrawal fee for every charge past the maximum withdrawal. This fee is not incredibly large (it’s often $10), but it could add up if you continue to ignore the maximum and make transactions. And if you keep up this habit, your bank could eventually decline a withdrawal as a punishment for ignoring the account restrictions. 

You shouldn’t face a problem like “too many transfers” when you’re dealing with an emergency fund. Unless you have terrible luck, you’re not likely to have multiple emergencies on a monthly basis. So, as long as you’re using your emergency fund properly and only making withdrawals when you really need to, you shouldn’t have to cross the maximum before the month is over. 

4. What If You Don’t Have Enough in Your Fund?

It’s possible that you might not have enough sitting inside of your emergency fund to cover an urgent expense when it actually shows up. Maybe your emergency fund is still new, and you haven’t had time to collect enough money to rely on in a crisis. Or maybe you had to make a recent withdrawal from your emergency fund and now you don’t have enough left over for a new expense. You might feel panicked that you can’t fall back on your fund to pay for a problem. What can you do?

When you don’t have enough savings in an emergency fund to cover an expense, consider borrowing funds. You could charge the expense to your credit card and then pay down the balance afterward. Or you could look into cash online loans and see whether you meet the qualifications to apply for one. If you meet the qualifications and you submit an application, you just might get approved for the online loan. Then you could use the temporary funds to cover the emergency expense as soon as possible. 

Now you know that you don’t have to worry so much about building an emergency fund. Stop hesitating and get building! 

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