Who is Catey?
Catey Hill is the author of “Shoo, Jimmy Choo! The Modern Girl’s Guide to Spending Less and Saving More”, the money columnist for Seventeen magazine and a reporter for Smart Money online. Catey has been an expert source on personal finance for “The Early Show” on CBS, Access Hollywood,Cosmopolitan, Woman’s World, FOX Business News, “The Huckabee Show” on FOX, among others, and her work has been featured in The Wall Street Journal, The New York Times, Allure, Smart Money, and more. Previously, Catey was the money editor for the New York Daily News online and the financial marketing manager for Forbes. Catey lives in New York City.
Should you keep a rainy day savings account separate from another savings, wedding, house, car purchase account so as not to confuse funds?
Yes, a lot of times, you should keep your savings separate. First off, think of your savings in three buckets:
- Long-term savings, which fund goals like retirement that will take place many years in the future
- Short-term savings, which fund goals that will take place in about 5 years or less (like paying for a wedding or a down payment on a home)
- Emergency fund, which contains about 6 months worth of income that you can tap in case of an emergency like losing your job. We’ll talk about your long-term savings, which are definitely invested in a different way than your short-term savings and emergency fund, below.
In terms of your short-term savings and emergency fund, it may be a good idea to use different accounts, depending on when you’ll want to access the funds, the risk you’re willing to take, and other factors. High-interest savings accounts and MMAs, both of which are safe because they’re FDIC-insured and have few or no penalties for one-time withdrawals on a whim, are good bets for your emergency fund since you don’t want to put that money at risk and you may need to tap it on the spur of the moment. Plus, MMAs and high-interest savings accounts earn interest, which make them more attractive than your checking account. For your short-term goals, these accounts may also be good options, though for those of you who don’t need to withdraw your money on a whim, you may want to consider a certificate of deposit (CD) or treasury note or bill if they offer better interest rates than your MMA or savings account do. For example, if you want to buy a home in five years, you might choose a CD with a five-year maturity date, remembering that early withdrawal of your funds will likely result in penalties. Other options for your short-term savings include money market mutual funds (MMFs) and I-Bonds. Bankrate.com is a great resource to learn more about these options.