Emergency / Short Term Savings

I was actually able to combine these types of savings for the most part so I will cover them together. It is always a good idea to have a certain amount of accessible money for emergencies. I like to have a certain amount in my checking account for immediate emergencies and then another amount in an emergency savings type of account.

First the checking account money is important to have for emergencies that are pay now types. I would call a pay now emergency something like car problems you want to get the bill paid when the car breaks down. Also there are emergencies that may be pay "later" you can have a day or two to transfer the money from your savings account to checking to be available this might be something like injury or losing a job. Your checking account sum should be probably in the range of a months expenses you wouldn't be able to get much interest on that money in a month anyway.

The other emergency short term savings should cover about 3 months expenses just to have a time of recovering in case of problems. Larger amounts of short term savings should be held in an interest bearing account. There are quite a few options for short term savings from interest checking accounts, to savings accounts, even some CD accounts. I personally have been impressed with the opportunities presented by Money Market accounts. These accounts carry restrictions similar to savings accounts but have higher interest rates some are even around a 5% APR.

The choice of savings account type depends on how you like to access your money, how much rollover you might expect, and how much you are hoping to make in interest. Some examples of money market restrictions can be seen here. I am currently holding my short term savings in an internet money market which is at about 5% APR and is not too much of a hassle if you are used to online banking. It gives a decent amount of flexible access and can be accessed for short term needs.