How to Avoid Excess Withdrawal Fees on Savings Accounts

Since savings accounts are designed for saving, you’re not supposed to perform a large number of transactions.

If you do, you may get hit with an excess withdrawal fee.

Like with any fee, you’d want to avoid paying it.

Learn which transactions can be considered excess withdrawals and how you can reduce the chances of making them.

What is an Excess Withdrawal?

There is a law, known as Regulation D from the Federal Reserve board, governing certain bank accounts that limit the number of withdrawals on savings accounts and money market accounts to six (6) per month.

An excess withdrawal is a withdrawal from a savings account or money market account that occur after the first six (6) withdrawals made per month.

The rule applies to:

  • outgoing fund transfers
  • debit card purchase transactions (applies to MMAs)
  • overdraft protection transfers

The rule does not apply to:

  • cash withdrawals made at the ATM
  • transaction initiated in person at a branch
  • withdrawals by check (initiated by phone)

Fees for Excess Withdrawals

Banks may charge an excess withdrawal fee for each withdrawal made after the monthly limit.

Typically, an excess withdrawal fee ranges from $10 to $15 each.


Some banks make it more confusing by charging an excess withdrawal fee before the six-per-month limit. However, the fee is usually less than a typical excess withdrawal fee.

For example, the bank could charge $4 after the third (3rd) withdrawal per month. As a result, the fee can act as an alert to the customer that he or she is approaching the standard monthly withdrawal limit.

Consequence of Frequent Excess Withdrawals

To banks, a high volume of monthly withdrawals from a savings account is an indication that the account is not being used as intended: saving.

Rather, such banking activity is usually found with checking accounts, which tend to have higher monthly fees and/or tougher fee-waiver requirements.

Banks don’t want customers to use their savings accounts as checking accounts because the money held in savings accounts is a predictable source of deposits — essential to how banks conduct their business.

Tips on Avoiding Excess Withdrawal Fees

Because excess withdrawal fees are charged per withdrawal, they can add up to be quite expensive.

These are the ways that you can avoid (or, at least, minimize) those fees:

Larger, but fewer transfers

Review the outgoing transfers that coming out of your savings account to see if you can combine them into a single transfer. Cut down on the frequency of transfers by withdrawing more money at one time.

Make a visit to the bank

If you know you’re about to get charged for an excess withdrawal, but you still need to make a transfer, you should head to a branch to initiate the transfer in person.


These transactions made with the assistance of bank staff are not counted toward the monthly withdrawal limit.

Use an online savings account

Many online savings accounts are well-known for market-leading interest rates with no monthly fees.

But, to sweeten the deal, some of them don’t charge excess withdrawal fees at all.


That’s not to say that you can make an unlimited number of withdrawals per month. An online bank can still choose to reject a transfer that violates Regulation D. However, a few of these withdrawals may slip by without any fees occasionally.

Again, don’t abuse this policy because an online bank can convert or close your savings account if you do so.

Keep more money in your checking account

If you find yourself moving money from your savings account to your checking account frequently, simply keep a higher cash balance in your checking account to avoid potential excess withdrawal fees.

This also goes toward eliminating overdraft protection transfers to cover any negative balance in your checking account. Not to mention, overdraft protection transfers have their own fees too.

And, if you opt to have direct deposit into your savings account, consider switching your paycheck to deposit into your checking account instead.

Don’t pay bills from savings account

While you may be able to use your savings account for online bill payments, it isn’t advised. Each of these payments will count as a transfer/withdrawal toward the monthly limit.


Keep these types of transactions for your checking account, which is designed to be your financial hub.

Open an online checking account

If you make multiple transactions through a savings account because you don’t want to deal with the costs of a traditional checking account, consider an online checking account.

Many online checking accounts have no monthly fee with no minimum balance requirements.

This way, you have a real account to handle constant transactions and banking activity — with no monthly limit on transfers and withdrawals.


Excess withdrawal fees can be expensive. But, luckily, they are easily avoidable.

Find out the reason that you’re making frequent withdrawals and transfers from your savings account.

Then, take the above steps to reduce the likelihood of going over the monthly limit enforced by Regulation D.

Simply, make sure that a savings account is being used for its intended purpose: saving.

How to Save for a Down Payment on Your First Home

You might already be thinking: “Saving up to buy a home is no small feat.”

You’d be correct.

But, start saving today and you’ll be most prepared to pull the trigger when you come across that dream home.

The first step:

Build up the funds for a down payment.

Learn how to save up for a down payment, including how much you should aim to save. And, use the different ways that can make it easier to reach this important financial goal.

The Right Amount for a Down Payment

One of the most common questions asked by prospective homebuyers:

How much should I have for a down payment?


There is no right answer here.

The right amount to save for a down payment depends on your target price range, which may be vastly different from someone else.

That said:

Whatever the price range that you’re aiming for, the industry rule is to have a down payment equal to 20 percent of the home price.

This is the amount that lenders will prefer to see before they’re ready to approve your mortgage application.

Note: When you put at least 20 percent down, lenders don’t require you to pay for private mortgage insurance (PMI). This type of insurance protects mortgage companies in case you don’t make your payments to the point where foreclosure is necessary.

Remember, that should be your goal (and it’s even better if you can save up even more for those unexpected costs involved with buying a home).

Here are some examples based on approximate median home prices in certain major U.S. metropolitan areas:

Pittsburgh, PA: $125,000

  • 10% down payment: $12,500
  • 20% down payment: $25,000
  • 30% down payment: $37,500

To accumulate the 20% down payment in 5 years, you’ll need to save roughly $417 per month. If you keep the money in a savings account that earns 2.00% APY, you can reach that goal with $396 per month.

New York, NY: $425,000

  • 10% down payment: $42,500
  • 20% down payment: $85,000
  • 30% down payment: $127,500

To accumulate the 20% down payment in 5 years, you’ll need to save roughly $1,417 per month. If you keep the money in a savings account that earns 2.00% APY, you can reach that goal with $1,346 per month.

San Jose, CA: $1,000,000

  • 10% down payment: $100,000
  • 20% down payment: $200,000
  • 30% down payment: $300,000

To accumulate the 20% down payment in 5 years, you’ll need to save roughly $3,333 per month. If you keep the money in a savings account that earns 2.00% APY, you can reach that goal with $3,176 per month.

Where to Save Your Down Payment

As the road to a down payment can be a very long one, you’ll want a place that’s designated for this purpose.

A savings account is the perfect place because it is easily accessible. This makes it easy to put money when you want (and easy to access when you’re ready to buy).


While you can use a regular savings account from a local bank in your neighborhood, it’s probably not the best option.

Instead, you should go with a savings account from an online bank.


Simply, online savings accounts tend to have no monthly fees and very high interest rates.

First, you don’t want to risk having to pay a fee in order to save money. It’s rather counterintuitive to your goal.

Second, online banks don’t have to pay the expenses of operating branches. This allows the banks to offer savings rates that are hundreds of times as much as the brick-and-mortar banks.

When you’re building up large balances in a savings account, your interest earnings can add up — and reduce the time that it’ll take save up for a down payment.

Put Your Savings on Autopilot

For many people, sticking to a savings plan is tough.

More often than not, the plan gets derailed and the goal of buying a home is never quite within reach.

What you can do:

To remove the need for willpower or discipline to accomplish this savings goal, automate the entire process.

This means moving money into your down payment fund without any work on your part.

There are two main ways that you can put your savings on autopilot:

Partial direct deposit

If you are paid via direct deposit, you’re probably setting 100 percent of those funds to be sent to your checking account.

It makes sense.

A checking account is the hub of your finances. You want to have all your money go through that account.

The problem:

You need to put in effort to transfer money into your savings. You might get lazy. You might forget.

Some people even feel like they are “losing” money for no reason by transferring the funds out of the checking account.

The solution:

Ask your employer to split your paycheck so that a partial direct deposit goes directly into your down payment fund. You don’t have to lift a finger or worry about being forgetful. And, you never saw the money enter your account so you won’t “miss” it.

Recurring transfers

Another way to save effortlessly is to set up recurring transfers that initiate automatically based on rules that you’ve set.


Configure a recurring transfer that kicks in right after you get a direct deposit.

You want those funds to go towards your down payment savings as soon as possible.

That way, you’re not tempted to spend it on things you don’t need.

Tap Your Retirement Account

If you’ve built up savings in a retirement account, you may be able to withdraw some of those funds for the strict purpose of a down payment on your first home purchase.

Roth IRA

After you’ve held the Roth IRA for at least five years, you can withdraw up to $10,000 before retirement without paying any income tax or penalty.

Traditional IRA

With a traditional IRA, the rules are different.

You can also withdraw up to $10,000 before retirement age, but you’ll have to pay income tax on the amount. Still, there’s not penalty because you’re using it for a down payment.


With a 401(k) plan, all withdrawals before retirement will result in taxes and penalties.

There’s the option of a 401(k) loan, but it isn’t advised in most situations.


Again, saving for a down payment is a long-term goal.

Whether you’re thinking about buying a house or not, it’s a big purchase that you should be prepared for.

Because a down payment is not small amount, start saving now.

How Much Should You Save for a New Car?

You’ve decided that a new car is in the near future.

And, you’re making the sensible move to save up for it.

The next part:

Actually building your savings for the next car purchase.

Find out how you should plan out your savings plan for this particularly big purchase — so that you don’t have to go into (too much) debt for it.

How Much Do You Need to Save?

This is a tricky question to answer because it depends on what you’re looking for in your next car and how you intend to pay for it.

New vs. used

The fact is:

New cars will cost more used cars.

If you’re going with a brand new vehicle, you’ll want a savings goal with a larger target amount.

But, while used cars are relatively cheaper, they can still be pricey if you’re considering luxury brands and/or more expensive models.

Pay in full vs. financing vs. leasing

After you’ve narrowed down the price for your next car, you have to think about how you want to pay for it.


When you plan to put up all the cash upfront to pay for the car in full, you have a clear savings target.

Commendably, this route also means that you don’t have to worry about incurring any debt or any restrictive leasings terms.


If you want to apply for a car loan to finance your purchase, your main goal would be to save up for a down payment.

Conventionally, for a new car, you’d want to have a down payment of 20 percent of the car price.

For a used car, a 10 percent down payment should be the minimum. However, if you want to lower your monthly payments, do your best to save up for a bigger down payment.


If you’re leasing the new car, the typical down payment is a few thousand dollars.

But, you may qualify for special deals with zero down payment.

You still have to pay fees and taxes.

More importantly, you have to be able to manage the monthly payments to come. With savings, you have a buffer to ensure that you’re able to make these monthly payments.

Your current car

Remember to include any value that you can extract from your existing vehicle.

Can you sell it for a good amount?

Even if you’ve got an absolute beater with 200,000 miles on the engine, your old car could still fetch a few hundred dollars when you send it to the scrapyard.

When Do You Plan to Buy Your Car?

With the foresight to begin saving for a new car, you might already have an idea of when you expect to ditch your old car for a new one.

Take this time frame to help you determine how much you should save every month to hit your target savings goal on time.

Divide the required amount to be saved by the months until you plan to buy the new car.

Here are some examples based on how you plan to pay for the car and various car prices:

Pay in full

With the goal of avoiding debt and paying for the entire car in cash, you may have to put more into savings. But, the rewards is a debt-free car.

Used car price: $6,000

  • 12 months – Monthly savings goal of $500
  • 24 months – Monthly savings goal of $250
  • 36 months – Monthly savings goal of $167

Budget new car price: $18,000

  • 12 months – Monthly savings goal of $1,500
  • 24 months – Monthly savings goal of $750
  • 36 months – Monthly savings goal of $500

Mid-sized new car price: $32,000

  • 12 months – Monthly savings goal of $2,667
  • 24 months – Monthly savings goal of $1,334
  • 36 months – Monthly savings goal of $889

Luxury new car price: $55,000

  • 12 months – Monthly savings goal of $4,584
  • 24 months – Monthly savings goal of $2,292
  • 36 months – Monthly savings goal of $1,528

Car loan

With a car loan, you want to aim for the 20 percent down payment target as a minimum (exception is the used car, which we use the 10 percent down payment amount).

If you can save more for a bigger down payment, again, it can help reduce monthly payments (and total interest paid).

Used car price: $6,000 ($600 down payment)

  • 12 months – Monthly savings goal of $50
  • 24 months – Monthly savings goal of $25
  • 36 months – Monthly savings goal of $17

Budget new car price: $18,000 ($3,600 down payment)

  • 12 months – Monthly savings goal of $300
  • 24 months – Monthly savings goal of $150
  • 36 months – Monthly savings goal of $100

Mid-sized new car price: $32,000 ($6,400 down payment)

  • 12 months – Monthly savings goal of $534
  • 24 months – Monthly savings goal of $267
  • 36 months – Monthly savings goal of $178

Luxury new car price: $55,000 ($11,000 down payment)

  • 12 months – Monthly savings goal of $917
  • 24 months – Monthly savings goal of $459
  • 36 months – Monthly savings goal of $306


The difference between leasing and buying a car can be major when it comes to how much you need to save to get the car in your possession.

Rather than list monthly savings goals for various kinds of vehicles, we’ll simply use fixed down payment amounts.

$1,000 down payment

  • 12 months – Monthly savings goal of $84
  • 24 months – Monthly savings goal of $42
  • 36 months – Monthly savings goal of $28

$2,000 down payment

  • 12 months – Monthly savings goal of $167
  • 24 months – Monthly savings goal of $84
  • 36 months – Monthly savings goal of $56

$3,000 down payment

  • 12 months – Monthly savings goal of $250
  • 24 months – Monthly savings goal of $125
  • 36 months – Monthly savings goal of $84

If you find that the monthly savings goals are not achievable by your income, you might have to live with the fact that your income simply cannot afford the car that you want.

Where to Build Your Savings


You can use any regular savings account to build up your savings.

But, they’re not the best option.

A typical savings account from a big bank may come with the potential of a monthly fee. And, the interest rate is likely to pay close to nothing on your savings.

Rather, an online bank — and an online savings account — is a better choice.

Most online savings accounts don’t have any monthly fees.

The best part:

Their interest rates are among the highest that you can get anywhere.

Once you’re done using an online savings account to save up for a new car, it is good enough to keep around for your next major savings goals (such as a wedding, vacation, or home down payment).

How to Save Effortlessly

With a savings goal in mind and a savings account to help you accomplish it, it’s time to build your balance in time for the new car purchase.

There are two recommended methods to do this with as little work as possible:

Split direct deposit

Your employer may allow you to split your paycheck so that part of it goes directly to a different bank account.

Set up a partial direct deposit to your online savings account so that you never see the money in the first place.

That way, you don’t miss it.

Recurring fund transfers

Another popular savings method is to configure a recurring fund transfer that will take money out of your checking account (or any other bank account) and move it to your savings account.

Again, you don’t have to do anything yourself so you can rest assured that you’re slowly working towards the savings for the car.


Many factors go into the calculation of how much you need to save up for a car.

This procedure will assist in narrowing down your options.

When you finally come up with a rough estimate, you can focus on the part that requires the most diligence — saving.

Best Savings Accounts for Your Emergency Fund

You understand the vital role that an emergency fund plays in your finances.

It can turn an unexpected expense into a small financial setback, as opposed to an overwhelming debt burden.

Now, as you aim to establish an emergency fund properly, you’ll want to use the right savings account that offers a great interest rate (to grow your money faster) without any outrageous fees.

Find out:

  • The best savings accounts for an emergency fund
  • What factors to consider in your decision
  • How much to keep in an emergency fund
  • What is a “financial emergency”

The Best Savings Accounts for Your Emergency Fund

Synchrony Bank – High Yield Savings

The Synchrony Bank High Yield Savings account is a great all-around savings account for an emergency fund because it has no monthly fee and a highly competitive savings rate (with no minimum balance required to earn this APY).

The best part:

It comes with an optional ATM card that you can use at any ATM. Synchrony Bank does not charge an ATM fee, but the ATM owner may charge a fee.

Every month, the online bank will refund up to $5 in such fees charged by domestic ATMs.

Ally Bank – Online Savings

Ally Bank is a trusted online bank that offers an online savings account with no monthly fee and a great savings rate.

Most notable is the bank’s user-friendly mobile banking app, which allows customers to access their accounts with great ease.

You can view balance, initiate transfers, and deposit checks.

Interestingly, Ally Bank even allows you to request a check as a method to withdraw your funds.

How to Choose an Emergency Fund Savings Account

The truth is:

Any savings account can be used for an emergency fund.

After all, you just need a place to hold your money — a place that is relatively easy to access when you need to do so.

However, there are small features that could mean greater convenience in the event that you’re faced with a major financial emergency.

ATM card access

In the instances when you need cash immediately, it’s nice to be able to use an ATM.

But, not all savings accounts come with a linked ATM card — meaning you have no way to withdraw cash.

To be fair, you might not want such card access because it increases the likelihood that you’ll use the money on non-essential spending.

If you do prefer the ability to access an ATM for a financial emergency, you should look for a savings account that offers this feature.

The downsides:

Usually, there are ATM withdrawal limits.

For example, the maximum that you could take out at an ATM is $1,000 per day.

So, if a pressing financial emergency requires more than the limit, you’ll have to find other ways to come up with the additional cash on your own.

Additionally, watch out for ATM fees.

ATM transactions fees are charged when you use an ATM that is out of the bank’s network.

To make matters worse:

The operator/owner of the ATM will also impose a surcharge. So, you’re paying a fee to your bank and a fee to the owner of the ATM. Such a transaction could cost more than $5.

Luckily, in a true emergency, this cost won’t seem like a big deal. What matters most is that you get the cash that you need at that very moment.

Mobile banking apps

While not a necessity, mobile banking apps provide a bit of added convenience when you’re in a financial crunch.

They’ll be most useful when you’re on the go and want easy access to your savings account.

This way, you can initiate a transfer at a moment’s notice — when you cannot get to your computer.

Moreover, it is very likely that the bank will offer mobile check deposit, which makes it easier for you to fund your account.

No monthly fee

You cannot be paying a monthly fee on a savings account, regardless of whether it is used for an emergency fund or not.


It doesn’t make sense for you to lose money in an account that’s designed to build savings.

Savings accounts from traditional banks, especially those that operate large branch and ATM networks, will likely come with a monthly fee. Usually, this fee is waived by meeting certain requirements, such as maintain a minimum balance, post monthly deposits, set up recurring transfers, etc.

Fortunately, many online banks offer savings accounts that don’t have any monthly fee.


Simply, online banks don’t pay the operating expenses of running physical locations. So, customers tend to have fewer fees to worry about.

That leads us to the next factor to consider…

Interest rates

Your emergency fund can do more than just sit there waiting for its time to be useful.

By choosing a savings account with a strong savings rate, your emergency fund can actually grow very quickly.

Essentially, you’re passing up free money if you stick your money in a savings account with a terrible savings rate.

How Much Should You Keep for a Rainy Day?


There is no correct answer to this question.

The right size for any emergency fund varies based on each person and his or her unique circumstances.

The general rule is:

Keep 3 to 6 months of living expenses.

Living expenses include the costs of securing shelter (i.e., rent or mortgage payment), essential utilities (not cable TV), food, and work-related transportation.

So, let’s say these are your bare essentials:

  • Rent: $1,000
  • Utilities: $200
  • Food: $200
  • Transportation: $100

Your monthly expenses are $1,500. So, your emergency fund should range from $4,500 to $9,000.


To those who have trouble accumulating savings, 3 to 6 months worth of living expenses is a lot.

But, you don’t need to come up with that right away.

A good goal to start with:

A $1,000 emergency fund.

Then, slowly build it up when you can.

What is Considered a Financial Emergency?

Once you’ve created an emergency fund, you may wonder when it would be most appropriate to use it.

Far too often do people make the mistake of tapping these savings for spending that is not a true emergency.

For example, you should not dip into your emergency savings because you’ve come across the biggest retail-shopping deal of a lifetime. The fear of missing out on a huge discount is not an emergency.

It all comes down to four (4) questions to ask yourself:

  • Are you in danger of losing shelter?
  • Are you unable to get to work and earn income?
  • Is your immediate health in jeopardy?
  • Did you lose your job?


You need to be able to have a roof over your head and utilities running to survive on a daily basis.

If your home needs a costly repair now (i.e., a tree fell on your roof), use your emergency fund.


If you can’t get to work, you can’t earn income.

When your car breaks down unexpectedly and it is needed for your commute to and from work, you need to get it fixed as soon as possible.

On the other hand, if you don’t use the car for work and there’s an issue, build separate savings for that repair.


If you think about it, it also affects your ability to bring in money. When you’re sick, you can’t work.

But, generally:

Your health is of utmost importance.

Any medical emergency is also an immediate financial emergency.

Job loss

This is the more common purpose of an emergency. It is also the reason why the general suggestion recommends 3 to 6 months of living expenses.

An emergency fund can allow you to survive when you’re unemployed. Additionally, you have time to find a new job that is a good fit, as opposed to jumping onto the first opportunity (which may not be the best one for you).

You don’t always choose to be unemployed. Job loss means an instant loss of income that could put your entire life in danger.

So, this is a good reason for using your emergency fund.



The best savings account for an emergency fund is that one that actually allows you to establish an emergency fund successfully.

Many savings accounts will do the trick.

Some are just slightly better than others. Cut out the monthly fees and choose a higher interest rate for an account that you don’t have to worry about — while also see your money grow.

Hopefully, you never have to use your emergency fund.

But, you can’t argue against the peace of mind from having one.

Pay Down Debt or Save Up for an Emergency Fund?

As you take charge of your finances, you’re making plans to improve your money situation.

Up next on your list may be a tricky decision:

Should you focus on paying off debt or should you work on building a solid emergency fund?

To be fair, both options are steps in the right direction, which is why you might find it difficult to choose between the two.

Learn about the benefits of each approach to find out which one is the smarter move for your finances.

Why You Might Prefer to Pay Down Debt

There are a few reasons you would want to focus on paying down debt.

Reduce interest paid

Borrowing money isn’t free, you have to compensate the person or bank that loans you money for the risk they’re taking. This compensation comes in the form of interest payments.

Interest is represented as a percentage of your loan’s balance per year. Consider this simplified example:

You borrow $10,000 at an interest rate of 5%. You don’t make any payments in the first year. At the end of the year, you will owe $10,500 to the bank you borrowed money from the $10,000 you borrowed and $500 in interest.

Different types of loans have different interest rates. Your credit score also plays a major role in determining the interest rate you pay. In general, riskier loans have higher rates.

That’s why credit card debts and personal loans, which have nothing backing them, charge more interest than a mortgage or car loans, which are secured by an asset.

People with poor credit also pay more interest than people with good credit.

If you pay down your loan’s balance, the amount of interest that accumulates is decreased.

Making larger than required payments reduces both the length of time it takes to pay off a loan and the amount of interest you will pay.

An example

You have $100,000 in student debt at 6% interest. The loan has a term of 20 years, so you will make payments every month for the next 240 months.

If you follow the loan’s schedule, you’ll make monthly payments of $716.43.

After 20 years, you’ll have paid a total of $171,943.45. By making the minimum payment, you’ll have paid more than $70,000 in interest.

If you up your monthly payment to an even $800, you can save a huge amount of money. Instead of taking 240 months to pay off your loan, you’ll take 197 months.

You’ll be debt-free more than 3 years sooner.

Even better, you’ll only pay $57,324.69 in interest, which means you save more than $13,000 by focusing on paying down your debt.

Peace of mind

Don’t discount the psychological value that paying down your debt can have.

You’re constantly worrying about paying a bill that doesn’t seem to go away.

Your relationships may suffer because of the financial strain that is caused by debt.

The truth is:

If you don’t make those payments, debt collectors will hound you and your credit score will drop.

If you do make the payments, you might not have enough to make ends meet or buy the things that you want.

Being debt-free means you have more money available to save or spend as you’d like. It also means less stress as you worry about handling all your bills or accidentally missing a payment.

Why You Might Focus on an Emergency Fund

There are some good arguments in favor of building an emergency fund before you focus on paying down your debt.

Avoid new debt

One major benefit of having an emergency fund is avoiding new debt.

If you don’t have any money in a savings account and your car breaks down, you have two options:

  • lose your job because you don’t have a way to get to work, or
  • take out a loan to pay for car repairs.

The choice is clear:

You should take out the loan so you can continue earning an income to pay your other bills.

Still, borrowing money isn’t free, so you’ll have to pay interest on the loan.

If you had money in an emergency fund, you could instead pay for the repairs out of pocket. You would have to replenish your savings, but you wouldn’t be dealing with interest charges while you do.

How much to save

How much to put in your emergency fund is a difficult question because there’s no one size fits all answer.

The answer depends on your situation: how many dependents you have, how secure your job is, whether you have a social safety net.

A good rule of thumb:

Aim to have between 3 and 6 months’ expenses in your emergency fund.

This is enough to pay for most emergencies and to help you cover your living expenses if you lose your job and have to find a new one.

Which One to Prioritize?

Now that valid reasons have been presented to you for consideration, you clearly see the benefits of paying off debt and building an emergency fund.

That being said:

You don’t have to pick one over the other.

Rather, you can address both goals simultaneously.

Start with a small emergency fund

The best thing to do is to focus on building an emergency fund first.

This can be difficult, especially if you have high-interest debt, but this safety net of accessible cash is hard to beat.

If you have no emergency fund, one unexpected expense could force you into taking out another loan which will only add to your pile of debt.

You don’t want to find yourself in a situation where you already have so much debt that you can’t borrow more money. (Or, you’re stuck with very expensive, high-APR loans.)

Split your focus

Consider is to split your money between an emergency fund and high-interest debt.

Start by putting 100% of your focus on building a small emergency fund of about $1,000.

Once that has been achieved…

Split your attention between increasing that emergency fund and paying down any high-interest debt.

Once you’ve paid down your most expensive loans, you can start to split your extra money between your emergency fund and your remaining debts. Once you’ve built your savings to the point where you’re comfortable, you can fully focus on paying down debt.

Consider Consolidating Your Debt

If you have multiple loans or even just some high-interest debt, you can benefit from consolidating your debt.

Debt consolidation is the process of taking out a new loan and using the money to pay off your old loans.

This lets you change your debt’s interest rate and lets you combine all of your monthly bills into one monthly bill. You can also choose the term of your new loan when you consolidate your debt, giving yourself more time to pay off your loans.

There are two good ways to consolidate your debt.

Personal loans

Personal loans are some of the most flexible loans on the market.

You can use a personal loan for nearly any purpose, including debt consolidation.

Many lenders offer personal loans. Some specialize in small loans while others will let you borrow as much as $100,000 or more. You should have no trouble finding a personal loan that will let you consolidate your debt.

Personal loans are also great for people who need to get money quickly. If you want to consolidate your loans and only have a few days to do it, personal loans are the way to go.

Balance transfer credit card

Balance transfer credit cards are another good way to consolidate your debt.

If you can commit to paying off your debt quickly, they can help you save a lot of money.

Many credit card issuers offer incentives to customers who sign up for their credit cards. One of the most common incentives is a balance transfer deal.

Usually, there’s an introductory period where the balance transferred will enjoy a 0% APR — this means you don’t have to pay interest on the balance for that period of time.

Typically, these interest-free periods last from 12 to 24 months.

To sweeten the deal:

Some cards may waive the balance transfer fee, which usually ranges from 3-5% of the balance.

If you can manage to pay off the debt you transfer to the credit card during the interest-free period, you can save a huge amount of money.

The caveat:

If you don’t pay off your full balance by the time the interest-free period expires, you’ll start accruing interest normally. Even a small balance can incur huge interest charges because credit cards can charge 20% in interest or more.

If your priority is reducing your monthly payment, a long-term personal loan is your best bet. If you have a lot of extra money in your budget and want to be debt-free as soon as possible, look for a balance transfer credit card.


Paying down debt and building an emergency fund are both very important steps towards healthy finances.

Choosing which to prioritize can be difficult, but the best answer is to do both.

Make sure you have some money on hand to handle emergencies, then shift some of your focus on paying down your most expensive debt.

Should You Put an Emergency Fund in a CD?

Life has a way of throwing expensive curveballs.

You want to be prepared.

It’s not a question of if you’ll have an unexpected expense, but rather when — hence the importance of establishing and maintaining an emergency fund.

Some people are old-school and keep their emergency cash under the mattress or in a shoebox. But while this approach keeps funds close, it doesn’t provide the most protection. And it also robs you of any opportunity to earn interest.

The bank is one of the best places for your emergency fund.

Yet, another question remains.  Is your cash better in a savings account or a certificate of deposit (CD)?

Learn about the differences of these two common types of bank accounts to see which one is more appropriate for an emergency fund.

The Point of an Emergency Fund


Emergencies don’t happen every day.

So it’s easy to downplay the value of saving for an unexpected expense or a rough patch. You might put it off until your income increases. Or only save a small percentage of your earnings.

But even if you’ve been fortunate thus far, everyone faces an emergency at some point. Not to say you should obsess over situations that might never happen. All the same, having an emergency fund can provide peace of mind.

For example:

Car repairs, home repairs, medical bills, and last-minute travel can cost hundreds or thousands of dollars.

If you don’t have enough money in savings, you could end up relying on a credit card to get through these emergencies.

And if you’re unable to pay off your credit card, you’ll pay interest charges for each month that you carry a balance. This makes an emergency even more expensive.

An emergency fund also comes in handy after a job loss. The reality is, there’s no such thing as true job security. Even if you work hard and give your employer 110 percent, you’re not immune to job loss.

If you’re laid off or fired, it might take months to secure new employment. A savings account, however, can help you weather these storms.

What is a Certificate of Deposit?

Keeping emergency funds in the bank is a chance to earn interest on your deposit.

Naturally, you want to get the highest return on your monty. For this reason, you might consider putting your emergency fund in a CD. This is a type of savings account with one primary difference.

Certificate of deposits are also time deposits.

In other words:

You agree to leave your money in the bank untouched for a certain length of time.

CD terms can range from six months to 10 years, on average.

In exchange for leaving your cash in the account, the bank rewards you with a higher interest rate. At the end of your CD term, you’ll get back your original deposit plus interest.

The interest rate on a CD varies, but it’s more than the interest rate on a savings account. The longer your CD term, the higher your rate, too.

But while a certificate of deposit is an attractive product, it might not be the best place for your emergency fund.

Early withdrawal penalties

Remember, an emergency fund should provide quick access to cash for unexpected expenses.

With a CD, you can’t quickly pull money from the bank on an as-needed basis.  But you can do this with a savings account.

When you open a savings account, you are given a debit/ATM card which can be used to withdraw money from an ATM. You can also withdraw cash from your savings account inside a branch or transfer funds electronically.

Accessing cash in a certificate of deposit isn’t as simple.

If you want to pull money from a CD, it may take a day or two to access your money. This can be problematic when an emergency arises and you need same-day cash.

CDs are designed for long-term savings. Therefore, the idea is to avoid needlessly dipping into your account. This ensures that you’re able to maximize the growth of funds.  

Of course, this is your money. So you’re certainly free to request an early withdrawal.

This involves withdrawing money from your CD before the end of your term. But banks normally impose an early withdrawal penalty, often the equivalent of several month’s interest.

Some banks offer no-penalty CDs.

This allows you to withdraw money early without paying a fee. But while convenient, the downside is that these certificates of deposits come with a lower interest rate. This reduces your earnings and slows the growth of your account.

Why Use a Savings Account for an Emergency Fund?

There’s no rule that says you can’t use a CD for your emergency fund. But a savings account is usually a better option.

A savings account keeps your money liquid so you can access it whenever necessary.

Another benefit of a savings account is that you’re able to open the account with limited funds. Some certificate of deposits require a minimum opening deposit between $500 and  $1,000.

If you’re just starting an emergency fund, you may not have this amount of cash available. On the other hand, many savings accounts allow you to open an account with only $25.

Keep in mind that if you withdraw cash from a savings account, you’re limited to a certain number of online, electronic, and telephone transfers.

If you initiate more than six of these transfers in a statement cycle, your bank may charge a fee.

There’s no withdrawal limit when you take cash from an ATM or get cash from inside a branch.

A savings account may seem like the inferior option because these accounts don’t offer the highest rates.

The good news:

You can find better rates with a high-yield online savings account.

To maximize and grow your emergency fund faster, set up regular transfers into your account after each payday. This approach puts your savings on autopilot.

Also, ask your bank about automatic savings programs.

Some banks have a savings round-up program. For every purchase you make with a debit card, the bank rounds up purchases to the nearest dollar and deposits the change into your savings account.

Other banks will deposit $1 into your savings account each time you make a purchase with a linked debit card.

Another option to maximize your return is to skip a savings account and open a money market account. Your money is also more accessible with this type of account compared to a certificate of deposit.

But again, money market accounts limit accountholders to six withdrawals per statement cycle. Plus, opening a money market account may require a minimum opening deposit of $100, $500, $1000, or more.

How Much Should You Keep in an Emergency Fund?

The general consensus is to have a minimum of three to six month’s worth of income in your emergency fund.

But don’t stop saving once you hit this goal. The more you have stashed away for the unexpected, the better.

Understandably, you can only save what your income allows. Be mindful that starting an emergency fund may require a few sacrifices on your part. Some people feel that they don’t earn enough to save.

But the truth is:

Many people do earn enough.

The problem is that they’re living beyond their means.

Initially, you might not be able to save 10 percent of your monthly income for emergencies, especially if you’re also saving for retirement.

In this case, start small and save 5 percent of your income each month, with a goal of gradually increasing your savings deposits over the upcoming months or years.

Re-adjust your budget to see where you can cut back on spending, and then put the savings into your emergency fund.

If you get a raise, funnel the extra money on your paycheck into savings.

You should also save any free or surprise money you receive during the year. This can give your emergency fund a strong boost. Funds might include work bonuses, gift money, and perhaps a tax refund.


There’s no set amount to have in an emergency fund. The bottom line is that some savings is better than none. Do what you can afford. If need be, start by aiming for a $1,000 emergency reserve.

Even though a CD might not be the right match for an emergency fund, you can still open one if you like the idea of earning a higher rate and establishing a long-term savings.

What you can do is keep a percentage of your cash liquid in a savings account at your bank. This account will function as your emergency fund. You can then deposit another percentage of your cash into a CD.

This way, you’re able to enjoy the best of both worlds. You’ll keep some of your cash available for surprise expenses, while earning a higher interest rate on cash you’ll use for future goals.