9 tips for emergency savings accounts

More than four out of ten Americans don't have enough savings to take care of expenses for more than a month if they lost their jobs, and more than six in ten say they don't have enough savings to cover three months of expenses, according to a 2010 survey by MetLife.

That's scary, considering the tough job market and the stubbornly slow economy.

Everyone should have an emergency savings account to stay on track with the twists and turns of life. Here are nine tips for stashing cash.

1. More is better.

How much should you save for an emergency? Financial experts have long advised maintaining savings of at least three to six months income in case you lose your job. But considering the depth of the latest recession and the length of unemployment many Americans have had to endure, an even stronger safety net is a good idea.

2. But something is better than nothing.

On the other hand, don't get so overwhelmed with the idea of saving a year's worth of income that you give up. A month's worth of income is better than nothing. Just get started saving and with time the money will grow.

3. Set a goal.

Figure out how much you need to cover all your critical bills each month, and compare that to the savings you already have on hand for emergencies. Then determine how much more you'd like to save and set an achievable time line for reaching that target.

4. Review your budget.

Examine your spending to figure out where you can eke out some extra dollars to set aside for your emergency savings account. Small changes can reap big savings over time. Eliminating two fast-food meals for you and your spouse per week would save about $100 a month.

5. Make savings automatic.

Take advantage of the out-of-sight, out-of-mind mentality and have money deducted automatically from your checking account to your savings account before you have a chance to see it and spend it. Online banks let you set automatic withdrawals on a weekly, monthly or quarterly basis.

6. Keep it liquid in savings and money market accounts.

Stash your emergency savings in accounts that give you instant access to the money, such as checking, savings and money market accounts. Avoid relying on stock, real estate or exotic CD investments for emergencies. You may not be able to sell or get the price you want if you're forced to unload property or stock quickly, and complex CDs, such as indexed CDs, carry stringent withdrawal penalties.

Savings bonds are designed for long-term savings because they continue to earn interest up to 30 years, but you can use them earlier. Savings bonds must be held for least a year and there's a 3-month earnings penalty if you cash them in before five years.

Build a CD ladder to use CDs as emergency saving vehicles. A CD ladder includes CDs with varying maturity dates to provide a steady flow of income through the year.

7. Define emergency.

Set rules for when you can use the money to avoid confusing a want with a true need. Otherwise you might find yourself dipping into the emergency savings pot for a new flat-screen TV to watch the Super Bowl.

8. Stick to your plan.

Periodically review how things are going with your emergency savings strategy. Are you meeting your monthly savings target? Make adjustments as necessary.

9. Get the best bank rates.

Compare rates for money market accounts and savings accounts online to get the best bank rates available. Sure, rates are low these days, but you might as well get the best of what banks have to offer, even if it is a mere pittance.

Saving money sometimes means delaying gratification, but you'll be glad for the sacrifices you made the next time the unexpected happens and you have money in the bank to cover it.

Is high interest checking better than a savings or money market account? Consider four factors

With savings, money market accounts and CD rates still in the tank, one alternative to consider for boosting earnings is interest-earning checking.

A variety of online banks, smaller community banks and credit unions are marketing interest-bearing checking accounts that actually boast higher yields than many money market and savings accounts.

High checking account interest rates: What's in it for banks?

BancVue, an Austin, Texas, company that works with community banks and credit unions to set up the programs, says customers with high-interest checking keep higher balances and stay with their financial institutions longer than other customers. The company also says the products enable banks and credit unions to distinguish themselves from the big banks and cut costs by encouraging the use of efficient technology, such as online statements and automatic bill-pay services.

But make sure you understand how these checking accounts work before you cash in CDs and transfer money out of savings to open one. All of these deals come with specific requirements and unless they fit your banking behavior, you're better off finding the best rates on CDs, money market and savings accounts and putting you're money there.

Here's what to consider:

1. Look before you leap through the hoops.

To qualify for high-interest checking, you usually must do the following:

• Make 10 to 12 debit card purchases a month.

• Get all of your statements online.

• Use direct deposit and/or automatic bill payment services.

There's no use signing up for the account if you don't think can meet all the qualifications.

2. Compare checking, savings and money market balance requirements.

Many of these high-interest checking accounts limit how much money you can keep in them, and some have minimum balance requirements.

3. Is the bank convenient and worth your business?

Consider more than just the yield before you open an account. How is the bank's customer service? Can you get in touch with a real live human when you have a question? Does the ATM network feature enough convenient locations? Are there any hidden fees?

4. How much longer will these accounts be available?

Still reeling from the recession, banks now are coping with a slew of new regulations that have just gone into effect, including restrictions on credit card practices and checking account overdraft fees, and new rules that are in the process of being written, such as limits on debit card interchange fees. These are the payments merchants make to banks whenever a debit card is used to make a purchase and the transaction is processed over credit card networks. In fact, revenue from those debit card interchange fees are how banks can afford to offer interest on checking accounts.

So be aware that banks may change their offerings drastically in coming months.

The bottom line: read any account agreement carefully before moving money around, and pay attention to the notices your bank sends you. They might contain important information about new terms, requirements or fees.

If high-interest checking isn't right for you, look for the best savings rates online for CDs, money market and savings accounts. In today's low-rate environment and tough economy, you need to get the best bang for your buck, even if the best bang is a small pop.

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Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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