I used to think that a rainy day savings account was for spending on a rainy day when it was literally raining. On rainy days I would go shopping because there is nothing else to do in the rain. That is was when I was younger, now my rainy day savings account is my emergency fund.
What is your definition of a financial emergency?
I don’t spend the money unless I have a financial emergency which includes death, jail, and family members. Other than that I no longer dip into my rainy day account for miscellaneous reasons which includes being bored during the week, taking a road trip because I have nothing else to do on the weekend, or booking a last minute trip just because it’s a good deal.
Do you have a goal for your rainy day savings account or is it indefinite savings until you need it?
If you are saving indefinitely then the investments should be low risk and accessible at all times in case of an emergency. However we still want to earn some form of interest on our investments in case we don’t use it. A rainy day account has to be the perfect balance between the flexibly of a bank account and the rate of return of an investment account.
Here are some good investment options for our rainy day savings accounts:
– Money Market Mutual Funds are very low risk and therefore our money is stable. The rates of return vary each day because the assets in Money Market Mutual Funds are spread out among several short term investments. Interest is paid out on a monthly basis. It can take up to 24 to 48 hours for the money from selling Mutual Funds to be deposited into our bank account.
– High Interest Savings Accounts are a great investment option because they are usually offered by our Financial Institution; this gives us access to our money instantly when we transfer from our savings to our checking accounts. However, if we choose to open a High Interest Savings Account with another company such as Ally or ING it could take up to 5 business days for the deposit into our primary financial institution checking account.
What investment options are in your rainy day savings account?
My rainy day savings account holds a mixture of cash, short term fixed income through a Money Market Mutual Fund, as well as a Short Term Bond Mutual Fund that holds mostly provincial and federal bonds. I am holding a Short Term Bond Mutual Fund so I can earn a higher rate of return on the money that I don’t use. If ever I need to withdraw money from my rainy day savings account I use my cash first because it is not earning any interest and because I can access it instantly. Then I withdraw from my Money Market Mutual Fund, I withdraw from my Short Term Bond Mutual Fund only as a last resort because it is currently earning the most interest.
Photo by Duncan