The Three Savings Accounts You Need Part One: Emergency Savings

lipstick indulgence luxury spending

You know how every woman needs the perfect little black dress and the perfect red lipstick? Well, I beg to differ. What every woman really needs is the peace of mind that comes from having some money socked away for rainy days. After all, with some money behind you, you can buy any number of black dresses and red lipsticks, but you can’t pay the rent with frocks and wax-based tinted lip products. We’ve already discussed the idea of saving 25% of your income. Now, we’re going to get into the details of what you should actually do with the money you save.

As a general rule, there are three basic types of savings accounts that you need. Today, we’re going to focus on the first one: the emergency savings account.

What is an emergency savings account?

I’m sure you’ve heard this before, but the most basic thing you need is an emergency savings account. Essentially, this is where you keep the money that will keep body and soul together in the event of a disaster like losing your job or watching your home burn to the ground. Your emergency savings should be enough to get you back on your feet after that kind of event.

The rule of thumb that you hear bandied about is that you should have 3-6 months’ worth of expenses saved. If you’re being a good egg and using a budget and tracking your spending, you’ll have a solid idea of how much you spend in a month. Let’s say that figure is $3,000; your goal is going to be to have $9,000 to $18,000 tucked away somewhere safe (like, say, an FDIC-insured bank, more on that later).

So that’s… a lot of money. A scary amount, really, for many beginners. I get it. If you’re a novice saver, that can seem almost impossible to achieve. But I promise you, it can be done. After all, I did it, and I’m lazy and underpaid. The trick is to commit and work at it steadily. Saving even $100 a month will eventually get you there, but if you’ve committed to saving 25% of your income and keeping your expenses to 75% of your income, you can get to the magic 6-months-of-expenses-saved in just 18 months.

Trust me, there is nothing quite like the comforting glow of having enough money set aside to cope for a few months if you need to.

Where should I put that? (That actually is what she said)

When you set up your emergency savings, you need an actual account to put the money into. There are two things to consider when you’re deciding what to use for an emergency savings account: accessibility and interest rates. Since this is money for an emergency, you’re really going to want to put the money in an account that lets you access it when you need it, such as when you have an emergency.

Basic savings accounts typically let you take money out whenever you like, and often your bank will give you a savings account when you open a checking account. These accounts are insured by the Federal Deposit Insurance Corporation (up to $250,000), so you can feel pretty confident that you’ll be able to get out the money you put in, and they usually don’t have restrictions like minimum balances and so on. However, while they are great for accessibility they are usually super terrible on interest rates. The savings account that comes with my checking account offers a hilariously low 0.10% annual interest rate. Spoiler: I do not use this account for my emergency savings.

If you shop around, you can find accessible options with OK-ish interest rates. You can get up to 1.5% on a penalty-free certificate of deposit (CD) with Ally Bank, for example. This is still less than inflation, which is currently 1.6%, but it’s not the worst.  The downside is that, as with most CDs, you have to deposit a single lump sum, so this is better if you already have a chunk of savings. Another option, which will let you deposit every month, is the Goldman Sachs savings account, which offers 1.20% on a standard savings account. You could also look into Synchrony Bank or Discover Bank. I mean, you know how Google works, you can find these things—the point is that you want to consider how easy it is to access your money, and what kind of interest rate you can get.

I recommend saving up at least three months of expenses in an accessible account before you start pursuing any other savings goals. Being prepared for an emergency is one of the smartest things a girl can do.