Question

What are the pros and cons of using a combination of money in a savings account and low-interest credit as your emergency fund?

Answer 1

Pros: The combination of money in savings account and low-interest credit will offer you the advantage of both liquidity as well as lower risks involved with regards to your emergency fund. Money in savings account is highly liquid and can be easily withdrawn in case of an emergency. This increases liquidity as well as convenience during times of emergency. Money in low-interest credit offers the advantage of low levels of risk. This means that your money put aside for emergency purpose is not exposed to high risks and volatility and is relatively safe.

Cons: In terms of cons the combination of money in savings account and low-interest credit will not allow you to make your fund grow much through the power of compounding. Interest rates in savings accounts are low and this combined with low interest credit will not enable you to generate good returns in the form of interest and capital appreciation for your fund.