How to make an emergency savings account (and why you should)
Could you afford an unexpected $5,000 expense today? That's the average cost of a financial emergency.
Key takeaways
- The average cost of a financial emergency is $5,130.
- Finder data found 42% of the general population has less than $1,000 saved.
- The best savings account to use for an emergency fund is one with minimal conditions to meet.
Data from Finder's Wealth Building Report found that 42% of the general population has less than $1,000 saved, and 19% have no savings at all.
This is worrying, considering an uexpected financial expense costs around $5,000 on average.
If you don't have money set aside in an emergency fund, you might need to rely on credit or a personal loan, or sell other assets to pay for it.
How to create an emergency fund
1. Set a goal. The general guideline is to aim for about 3 months worth of living expenses saved up. This is because if you suddenly lost your income, it could take a few months to get a new job and replace it. However, you can start off smaller than this by aiming to put around $5,000 aside (the average cost of a financial emergency).
2. Look at your current spending. Take a look at your past transactions for 2-3 months and see where yo're over-spending, and where you have room to cut back and save.
3. Break down the goal. Set yourself realistic smaller goals, for example a weekly or monthly savings goal, to help you hit your overall target. Track your progress and make adjustments where needed.
4. Choose an account. Open a dedicated savings account for your emergency fund - ideally one that is seperate from your other accounts so you don't dip into it.
Best savings accounts to use for an emergency fund
A savings account with no conditions to meet would be ideal to use for an emergency fund. This way, you don't need to do anything to maintain the account and you'll still earn interest on yoru balance. Here are a few options.
Macquarie Savings Account
You can earn 5.10% p.a. on balances up to $250,000 for the first 4 months, then an ongoing rate of 4.75% p.a. on balances up to $2 million. There are no conditions to meet.
AMP Bank Go Save Account
You can earn an ongoing rate of 4.85% p.a. on balances up to $500,000 with no monthly conditions to meet.
Bankwest Easy Saver
You can earn 5.50% p.a. for 4 months on balances up to $250,000 (new custoers only), then an ongoing rate of 4.50% p.a. with no conditions to meet.
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