How And Where Parents Can Build An Emergency Fund

57.14% of Smart Parenting readers have no emergency funds.

This is one of the results of a Smart Parenting Audience Survey conducted last year. Moreover, it seems that parents find maintaining savings challenging these days, as around 29% feel that they don’t have enough. The survey also might have found the cause–with most parents paying off debts and paying for their child’s education.

Considering most parents have trouble saving up, do we need a savings fund? And if we do, is it different from an emergency fund, and do parents need to have both?

What is an Emergency Fund

A savings and emergency fund have one thing in common: both involve setting aside money. However, their purposes are different: savings funds are typically established for future goals and to secure long-term financial security, while emergency funds are specifically for situations the term implies–emergencies, including unexpected expenses such as health or financial emergencies.

Considering that emergency funds can be used as needed, they’re typically held in a savings account to ensure easy access.

Where Should Parents Put Their Emergency Fund

Since experts recommend that families’ emergency funds should be in safe, liquid, and easily accessible accounts, here are a few options to consider:

High-Yield Savings Accounts

Digital banks in the country offer higher interest rates for savings accounts than traditional banks. Plus, since most of them can be accessed via user-friendly apps, deposits and withdrawals (as the need arises) are quickly done. Some options to consider are:

Maya

Maya currently offers a base interest rate of 3.5% per annum. Maya is also known for promo boosts: the interest rate can reach up to 15% per annum by using Maya for everyday transactions: paying bills, topping up mobile load, and using Maya Wallet or Maya Easy Credit for online, QR, or card payments. Users can also use the Personal Goals option, which, aside from helping users budget and save up for specific objectives, also lets users enjoy another 4% interest per annum.

GoTyme

Starting this March, GoTyme offers clients a 3.5% interest rate annually, with no minimum deposit required.

Tonik

Tonik Bank offers several savings options with different interest rates:

• Regular Tonik Account: 1% per annum
• Solo Stash (personal goals, users can open a maximum of 5 Stashes, a combination of Solo and Group): 4% per annum
• Group Stash (group savings or goals, Tonik Users who accept an invitation to a Group Stash can add money to the savings account, but only creators can withdraw funds): Up to 4.5% per annum.

SeaBank

SeaBank’s regular savings account offers a 4% annual interest rate for balances up to P400,000 and 3% for balances over that amount, with no maintaining balance required.

CIMB Bank

CIMB offers a base interest rate of 2.6% per annum for GSave accounts, with no initial deposit and no maintaining balance required.

To give you an idea, here are the interests you can earn with P5,000 for each of these digital banks:

Maya:
P5,000 savings + P175 (at 3.5% interest rate) or P750 (at 15% interest rate if you use Maya regularly) = P5,175 to P5,750

GoTyme:
P5,000 savings + P175 (at 3.5% interest rate) = P5,175

Tonik:
P5,000 savings + P50 (at 1% interest rate for a regular account) = P5,050
P5,000 savings + P200 (at 4% interest rate for Solo Stash) = P5,200
P5,000 savings + P225 (at 4.5% interest rate for Group Stash) = P5,225

SeaBank:
P5,000 savings + P200 (at 4% interest rate) = P5,200

CIMB Bank:
P5,000 savings + P130 (at 2.6% interest rate) = P5,130

For reference, traditional banks offer an interest rate ranging from 0.0625% to 0.15% per annum, with required balances. This will yield a P3.13 to P7.5 interest earnings for a P5,000 savings. Most banks also have specific requirements for a minimum initial deposit (from P500 to P3,000), a required minimum average daily balance (from P500 to P3,000), and a balance to earn interest (from P2,000 to P25,000).

Money Market Funds

Aside from savings accounts, another option to keep emergency funds is in money market funds–this type of mutual fund invests in short-term, low-risk debt securities, cash, and cash equivalents. Money market funds can keep emergency funds since they provide better interest rates than regular savings accounts and allow relatively quick access to your money compared to other investment accounts. Some options to consider are:

BPI Money Market Fund

This fund uses a diversified portfolio of short-term fixed income instruments to achieve liquidity and a stable income. It requires a minimum initial investment of P10,000 and a minimum transaction amount of P1,000. It has no minimum holding period and imposes no early redemption penalty. The fund's valuation depends on market-to-market daily.

LandBank Money Market Fund

LandBank recommends its money market fund for conservative investors looking to invest their money for a year or less. It aims to provide high liquidity, decent returns, and minimal investment risk. LandBank requires an initial investment of P5,000 with a minimum additional placement of P1,000. It also imposes a penalty for early withdrawals at 25% of earnings net of withholding tax and trust fee.

What to Consider in Building Your Family’s Emergency Fund

Having an emergency fund is crucial in ensuring your family’s financial stability, so it’s best to choose the right place and tool to keep your fund secure. Here are a few factors to consider when choosing where to place your fund:

Liquidity: Liquidity refers to how easily an asset can be converted into cash without affecting its value. Cash is still considered the most liquid asset because it can be used immediately for transactions. Bank savings, checking accounts, and savings accounts in digital banks are also considered highly liquid since these can be withdrawn at any time. Since an emergency fund will be used for emergencies–meaning you might need to access it quickly–opt for fund options and placements that impose no or minimal penalties.

Safety: Ensuring your money is safe is paramount, so it’s best to transact with legitimate banks. You can also opt for accounts insured by the Philippine Deposit Insurance Corporation (PDIC) to protect your deposits/investments.

Interest Rates: You can choose accounts that offer higher interest rates to make the most of your money and help it grow over time.

Considering these options and factors, you can choose the best place to keep your family’s emergency fund. Happy saving!

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