Investing the “Rainy Day Fund”

Having cash on hand to get through any ruff period in life is essential to any financial plan.

Financial analysts recommend having three to six month’s of living expenses on hand to get through any emergency, like getting laid off, without resorting to credit card debt, paying both cash advance fees and an exorbitant interest rates on credit cards. 

Where do you keep these reserve funds and get a decent return without losing your cash? There are safe several options which can give you a decent return without risking your rainy day fund.

• A short term certificate of deposit is a good choice. Your money will be locked up but if you keep the CD term short the interest penalty won’t be that severe if you need to access your money. Current yields on 3 month CDs are between 2.5% to 3.00% depending on the bank.
• A checking account is another good choice. Rates on traditional checking accounts will be lower then CD rates but if you open a rewards checking account yields can be much higher. Reward checking accounts have certain criteria you have to meet each month to earn the promotional yield, like using direct deposit, have a certain number of transactions, bay bills online or other criteria. MBR has reviewed several reward checking accounts.
• Another very liquid open is a money market account. Again yields won’t be as good as certificate of deposit yields or a reward checking account but you will have access to your funds without incurring a penalty.

The important thing to do is make sure you have a rainy day fund and that your rainy day fund is safe, you never know when you might need it. You don’t want to get into a situation of declaring bankruptcy because of a job loss or because of medical bills.  Resource: Lansing Bankruptcy

One can receive higher returns in other investments, but as with any investment, the better return the more risk you have to take.