Question

If the stock market is doing well, is it a bad investment decision to leave your emergency funds in a very low paying savings account? Explain your answer.

Answer 1

In general, savings account provides very less interest rates. Emergency funds are generally managed so that in case of any emergency the funds should be easily liquidated and easily available. people save amount in savings account as emergency funds so that they can utilize it in easy way. However, when markets are doing well, it is not advisable to put funds in savings account. the reason being there are many alternatives available which are emergency in nature but offer better returns that saving accounts.

for example, liquid mutual funds which have time duration varing from 1 day to 15 days. similarly fixed deposits which provide an option of premature withdrawl. so, it is better to save emergency funds in these options than saving accounts.