Managing Your Emergency Fund
MANAGING YOUR EMERGENCY FUNDS
Financial setbacks can happen when you least expect them, but that doesn’t mean you should allow yourself to be caught off guard. With an understanding of the resources available to you and a solid emergency savings plan, you can help ensure that any financial crisis is only a temporary obstacle.
1. HOME EQUITY LINE OF CREDIT (HELOC)
Homeowners may be eligible for a flexible and convenient line of credit by leveraging the equity in their home. One of the benefits of a HELOC over a personal or home equity loan is the availability of the money after you’ve paid back the used credit, without the need to reapply. Many times, HELOC interest rates are more competitive than traditional credit cards, and accessing your funds is as easy as writing a check. During financial emergencies, your HELOC can help supplement your income, allowing you to reserve your savings for the future.
FIDELITY BANK IS OFFERING A SPECIAL HOME EQUITY LINE OF CREDIT AT
3.99% FIXED APR FOR SIX MONTHS*
FOR A LIMITED TIME. ESTABLISH A LINE OF CREDIT FOR UP TO 80% OF YOUR HOME’S VALUE.
*This is a variable rate home equity line of credit with an introductory fixed rate available to borrowers who apply on or before June 30, 2020. Annual percentage rate (APR) converts to a rate based on the Wall Street Journal Prime Rate plus a margin after the introductory period. APRs are 4.00%-5.75% and current through 5/1/2020. Maximum APR is 18%. Applies to owner-occupied primary residence only. $5,000 minimum line amount required. Rates are based on loan-to-value of 80% or less and subject to change. Offer is subject to credit approval. Property insurance required. Appraisal fee ranging from $100 to $648 is required to be paid by customer, but is refunded if the loan is made. Possible fees: $30 if payment is returned for non-sufficient funds and $25 if credit line balance exceeds credit limit.
2. SAVINGS ACCOUNT
A savings account is a “rainy day” fund, or the mature version of a child’s piggy bank. For many people, an FDIC-insured savings account was their first introduction to financial planning. We were taught that placing money in the bank was not only a safe and practical way to grow our savings, it was financially rewarding to us as those savings earned interest just by sitting in a bank vault until it was needed. Although a basic element of a sound emergency plan, there are many types of sophisticated savings accounts that increase in benefit as the size of your deposit grows.
- Children’s Savings Account
- Certificates of Deposit (CD)
- Health Savings Account
- High Interest Savings Account
- Money Market Accounts
Consider moving your emergency fund into new savings accounts as it grows. The larger the deposit, the more interest you earn. That’s a benefit you won’t get from any piggy bank!
3. CREDIT CARDS
Credit cards are a common financial tool used for every day expenses. As part of your emergency fund, they can be a helpful resource as a type of temporary loan to supplement your income. It is important to use credit cards wisely to avoid taking on too much debt.
First, set aside a dedicated card to be used solely for emergencies. It is important to ensure that you define what you consider to be an emergency and limit usage of that credit card to those instances only. Credit cards may have higher interest rates as a trade-off for the ease and convenience they offer. Since you may begin accruing interest while the emergency is still ongoing, it is best to make credit cards a measure of last resort if possible. That being said, they should still be considered a vital element of your financial planning well before an emergency hits, so you can research your options and choose a credit card that best matches your needs.
These are just a few options to consider when planning for financial emergencies. The configuration of your personal emergency fund may vary based on factors such as income and existing debt. It is highly recommended that you work with a banker or financial professional who can help customize a plan that best fits your needs. Overall, the most important tip is to start planning now. You may not have control over when an emergency will hit, but how well you respond and recover is completely up to you.