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Emergency Fund: Savings Account or FD? Expert Reveals Best Option for Immediate Needs.
- •The purpose of an emergency fund is not to earn high returns, but to make money available without hassle when needed.
- •According to experts, instead of keeping the entire emergency fund in one place, it can be divided into different parts as per need.
- •For immediate needs, money can be kept in options like high-yield savings accounts or sweep-in FDs.
- •For the part of the emergency fund less likely to be needed in the next few months, liquid or short-term debt mutual funds can be considered.
- •FD can be an option for those who want a predetermined interest, but early withdrawal may incur penalties.
Key Questions Answered
For immediate needs, experts recommend keeping a portion of your emergency fund in a high-yield savings account or a sweep-in fixed deposit. These options ensure that money remains secure and easily accessible without needing to sell investments or take loans.
Yes, deposits such as savings accounts and fixed deposits in banks are insured up to ₹5 lakh per depositor, per bank under DICGC, subject to the agency's terms and conditions.
Liquid or short-term debt mutual funds can be used for the portion of the emergency fund that is less likely to be needed immediately. While they offer the flexibility to withdraw only the required amount, their returns are affected by interest rate changes and credit quality, and they are not completely risk-free.
