Do you know that approximately 75% of Indians don’t have funds for emergencies, and they could default on their Equated Monthly Instalments (EMIs) if they unexpectedly lose their income? The report titled ‘India’s Money Habits’ reveals a concerning statistic, i.e., only 25% of Indians have emergency funds for rainy days.
Having an emergency fund is very crucial. You can’t predict when you might face emergencies in the form of medical issues, home repairs, or sudden job loss. An emergency fund acts as a safety net that helps you manage critical or unexpected situations without disrupting your usual financial routine.
An effective way to grow your emergency fund is through a high-yield savings account.
Tips to set up and maintain an emergency fund with a high-yield savings account
From choosing a bank with an attractive savings account interest rate to automating your savings, know how to set up and maintain your emergency fund efficiently.
1. First, understand how big your emergency fund should be
A general rule of thumb is to save enough to cover three to six months of living expenses. Calculate your monthly expenses, including housing, utilities, food, transportation, and any debt repayments. Multiply this figure by the number of months you want to cover. This total is your financial target for the fund.
Note that the exact amount can vary based on your lifestyle, financial responsibilities, and employment stability. For someone with an unstable job, a larger cushion may be needed.
2. Choose a high-interest savings account
The higher the interest rate, the more your emergency funds will grow. Hence, look for a bank that offers the best savings interest rates. You can choose the IndusInd Bank Indus Select Savings Account to earn competitive rates on your deposits and grow your funds faster. Besides an impressive rate, enjoy premium benefits like:
● Open a savings account online with a 100% digital process
● More savings through higher cashback and discounts
● Exclusive discounts on lockers
● Free movie tickets via BookMyShow and other attractive deals
● Share your savings account benefits with up to four family members for free
Open your IndusInd Bank Indus Select Savings Account today!
3. Carefully plan how much to set aside each month
If you can’t immediately fund three to six months of expenses, begin with what’s manageable. Assess your monthly salary and existing financial obligations to decide how much you can practically set aside each month. You can start with small contributions and gradually increase the amount as your finances improve or if you find ways to cut down on other expenses.
You can also set up automatic transfers from your primary account to your high-yield savings account. Timing these transfers immediately after payday can be beneficial because a part of your income goes directly to emergency funds before any incidental spending.
4. Monitor and top up
Review your emergency fund and your financial situation from time to time. As your living expenses or income changes, adjust your fund accordingly. If you use part of the fund for emergencies, prioritise rebuilding it back to your target level to make sure you are always prepared for unexpected expenses.
5. Maintain the emergency fund
Discipline yourself to use these funds only for true emergencies, not for regular expenses or impulse buys. But what constitutes a need? Here are some examples:
| Medical expenses | Costs for urgent medical treatments, surgeries, or hospital stays. |
| Vehicle repairs | Urgent car repair or maintenance to bring your vehicle into working condition. |
| Home repairs | Expenses related to repairs or replacements for your home, such as roof leaks or plumbing issues. |
| Job loss | Financial support during periods of unexpected job loss until new employment is found. |
| Unexpected travel | Last-minute travel expenses due to family emergencies or other urgent situations. |
To sum up
Setting up an emergency fund in a high-interest savings account is a prudent financial decision. A higher interest rate accelerates the compounding effect, which means your fund will grow faster without extra effort. This growth also ensures that your emergency fund keeps pace with or even beats inflation, thus preserving the purchasing power of your savings over time.
When selecting a savings account, consider more than just the interest rate. Also prioritise factors like lower fees, digital banking features, better rewards, zero balance account, and a dedicated mobile banking app. Make sure to contribute regularly, and above all, use this financial cushion for genuine emergencies and not unnecessary expenses.
Alexia is the author at Research Snipers covering all technology news including Google, Apple, Android, Xiaomi, Huawei, Samsung News, and More.
