A core aspect of financial planning is risk management, which can be accomplished by diversifying investments, limiting fixed expenses, purchasing insurance, and maintaining an emergency fund. Most people use their savings and checking accounts to pay ordinary monthly bills and to serve as an emergency fund. However, today’s low interest rates are forcing changes to this traditional strategy. The reason why individuals typically use their general bank account as an emergency fund is fairly simple—i.e., the bank is easily accessible and the account holder’s money is usually safe because of deposit insurance. Further, in the past, the account holder earned some interest for letting the bank hold onto it. Unfortunately, today there is basically no return for leaving extra money in a savings account. While banks continue to provide safe storage, you essentially get no real return, especially once inflation is considered. This downside is compounded by the fact that some banks around the world have started charging negative interest rates. So you have to ask yourself, with many U.S. savings accounts paying close to 0% interest, is it possible to set up a better vehicle for your emergency fund, or are you stuck with 0% returns?
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