Money in a bank account doesn’t earn a robust return in today’s lower-interest-rate environment, but savings accounts still serve an important purpose.
These savings act as a safety net in case of emergencies, but in that case, you might ask, how much should you keep in that account?
According to the Federal Reserve Bank of New York, which conducts a regular survey on the topic, the average amount an individual will need to resolve a crisis is $2,000.
But that refers to an “average” individual. Those who experience emergencies may actually require more, depending on the emergency and the state of their finances.
As well, crises don’t always come one at a time. For example, a car breakdown might be followed by an illness that prevents you from working. You may want to prepare for several crises happening at once.
Are you concerned about a major crisis, such as losing your job or seriously injuring yourself?
Or are your concerns simpler, such as replacing an older car or needing home repairs? Answers to these questions will help clarify how much you’ll need for your savings account to be well funded.
Also evaluate your support system. If you’re single, have a stable job, and have parents who can help out in a pinch, you may not need as much in savings.
If you are the sole breadwinner in a five-person family and your income is based on commissions, you may need more.
So, while $2,000 is the minimum amount you should consider in funding your “emergency” account, you may want to aim much higher.
Clearly it’s not easy. The Federal Reserve Bank has estimated that only about 67% of Americans would be able to scrape up $2,000 if necessary.
If you don’t fall into this category, it may be time to revisit – or start – an emergency savings fund. Your financial professional can help.