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Strategies to Save

How My Emergency Fund Saved My Finances

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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In 2012, Heather Vernillo, then 33, learned she had kidney cancer. The Tampa-area nurse had emergency surgery days later. While her health insurance covered 100 percent of her care, the experience left her unable to work for 15 weeks. This translated to more than four months of missed income, plus a $1,100 monthly bill for COBRA, which kept her health coverage intact during her involuntary hiatus.

Vernillo’s emergency fund turned out to be her saving grace through an ordeal that cost her roughly $7,000.

“The situation pretty much wiped out my savings, but it was worth every penny,” she told MagnifyMoney.

Vernillo’s experience underscores the vital importance of keeping a cash reserve on hand. Still, two-thirds of Americans would struggle to cover a $1,000 emergency, according to a 2016 poll conducted by The Associated Press-NORC Center for Public Affairs Research.

Vernillo is no millionaire. As a nurse, her annual income fluctuated between $95,000 and $50,000 before her diagnosis. (She took a pay cut when she moved from New Jersey to Florida in 2012.) Nonetheless, she says her approach to building her rainy day fund was simple: She set up automatic monthly withdrawals from her checking account to her emergency fund, treating it like any other line item on her budget. It took about two years to build up a fund sufficient enough to cover the expenses she incurred during her medical crisis.

Now, she is focused on rebuilding her fund. This wasn’t always financially easy, she admits, but after her health scare, it was a top priority.

“I’ve been able to partially replenish [my savings] and currently have about two months’ worth of expenses tucked away, just in case,” she says.

Choosing your best worst option

When people don’t have cash on hand for emergencies, they’re more likely to turn to alternative borrowing methods that could wind up costing them much more down the road. (Hello, payday loans.) Sometimes, it can feel like a painful choice from an array of bad options.

If you’ve exhausted all your best options for cash — you’ve emptied your bank account and asked friends and family for loans — then it’s time to look at your next best alternative. And at this point, it’s about choosing the option that will cost you less in the long run.

If you’re overwhelmed with medical bills, for example, ask the doctor or hospital to put you on a payment plan. Or consider a personal loan or a low-interest credit card — whichever option carries the lowest APR. Check out our ranking of the 10 best options for cash when you need it fast.

“If you don’t have any other options, then using a credit card or personal loan to pay for an emergency is better than defaulting on a bill, which can negatively impact your credit score,” Natalie Colley, a financial analyst with Francis Financial, tells MagnifyMoney.  “You’ll pay more in the long run with interest, and ultimately you’re setting yourself up for financial instability and getting caught in a debt cycle.”

The key is to use these methods as a last resort and create a plan to pay down the debt as soon as possible.

Thanks to consistent monthly contributions, Marvin Fontanilla, a 35-year-old marketing professional in San Jose, had $8,000 tucked away in his emergency fund. It was enough to cover three months’ worth of expenses, and it came in handy back in August, when the battery on his hybrid car called it quits. A replacement cost $2,200, and an additional $622 for a rental car to use during the repair.

“It didn’t make a huge dent in our savings because my fiancee and I live way below our means,” Fontanilla says. “We’ve actually already replenished it by taking money we normally use to make aggressive student loan payments and redirecting it back into our savings account.”

While we certainly can’t anticipate every financial emergency that lies ahead, he adds that the death of his car battery didn’t come completely out of the blue; he knew when he bought a hybrid that the battery would likely have to be replaced once he hit 200,000 miles, so the expense was already in the back of his mind.

How much should you save?

Just as there’s no way Vernillo could have predicted her cancer, it’s impossible for any of us to really know what financial twists and turns are in our future.

“We can plan until we’re blue in the face for what lies ahead financially, but no matter how great our planning is, emergencies happen,” says Colley.

She tells her clients to live by a basic rule of thumb for savings: Save for at least three to six months’ worth of expenses.

“That’s a large number, and it’s going to take years to get there, but the important thing is to establish the habit of putting money aside every month and having it automatically transferred from your checking account to your savings account,” she says.

How much you contribute each month depends on a number of factors, not the least of which are income and expenses. After accounting for fixed bills and variable expenses like food and entertainment, what’s left should be divvied up between your financial goals. If your emergency fund is at zero, Colley suggests starting small and focusing solely on the first $1,000; a safe cushion in case of a minor setback.

Once you hit that milestone, you can begin redirecting some money toward other financial goals (like paying off  high-interest debt, dialing up your retirement contributions or saving for a down payment on a home) while continuing to build your emergency fund. Everyone’s goals are different, but the main takeaway here is that it isn’t an either/or situation. Rather, it’s all about saving for multiple goals at once.

Where to stash your savings

Where you keep your emergency fund matters. Colley likes the idea of keeping it at a bank that’s separate from a regular checking account. (Out of sight, out of mind.) She recommends going with an online, high-yield account, like Capital One 360, Ally or Synchrony. While a traditional savings account at your local bank will likely only pay 0.01 percent, these online accounts dole out 1.20 percent with no minimum balance requirement.

Another plus is that it typically takes three days to transfer money into your checking account, which reduces the likelihood of impulsive withdrawals. The idea is to build an emergency fund that’s liquid, but not so liquid that you’ll be tempted to dip into it when the mood strikes.

For smaller pop-up expenses that leave you needing cash on the spot — a flat tire or overdraft protection, for example — Colley says it’s not a bad idea to keep a few hundred dollars in a traditional savings account that can be tapped immediately.

“Having a fully funded emergency savings doesn’t happen overnight, and it also shouldn’t be your one and only focus,” Colley says. “If you do that, all your other goals will come to a grinding halt while you build your savings account.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
Marianne Hayes |

Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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Strategies to Save

Understanding the Various Types of Deposit Accounts

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

A deposit account is an account at a bank or credit union that allows you to safely and easily manage your money. Deposit accounts fall into two major categories: demand deposits and time deposits.

Demand deposit accounts, which include checking and savings accounts, may let you withdraw up to the full amount of your savings at any time without gaining permission from the bank or credit union. Time deposits, like CDs, restrict your access to funds for a set time period.

What are the types of deposit accounts?

The two key features of deposit accounts

All deposit accounts offer two primary features: security and interest.

Security

When deposited into an insured financial institution, your money is protected in the event of bank failure up to the legal amount per account by the Federal Deposit Insurance Corporation (FDIC), or up to the legal amount per credit union account by the National Credit Union Administration (NCUA). Joint accounts with two account owners get double the protection from the FDIC or NCUA. You can find out if the bank you’re considering is insured by the FDIC here.

Interest

You’re not just putting money into a deposit account to keep the funds safe — you also want to be rewarded for letting the bank hold your money. After all, banks and credit unions use funds held in deposit accounts to make loans to other customers, and earn profits. Interest payments is how banks and credit unions reward their deposit account customers, and incentivize them to keep funds in their accounts.

The longer you leave your money and earn interest in the bank, the greater the interest the account will earn. This is called “compound interest.” Depending on the bank and the account, interest may compound on a quarterly, monthly, weekly or daily basis. The more often interest compounds, the faster your balance grows.

When comparing prospective deposit accounts, you’ll want to review the annual percentage yields (APY). The APY advertised by your bank or credit union is the amount of interest you’ll earn in one year — the APY factors in the interest rate on the account as well as how often it compounds, so comparing APYs is the best way to compare the earning potential of different accounts.

Features of the main types of deposit accounts

These are the five main kinds of deposit accounts — let’s take a look at how they work and when you need them.

Checking accounts

Checking accounts are demand deposit accounts that let you deposit or withdraw money whenever you want. A checking account provides easy access to your money via paper check, ACH transfer, debit card, or cash withdrawal at a branch or ATM.

Some checking accounts pay interest, with our list of best accounts available paying upwards of 4.00% APY or more, as long as minimum balance requirements are maintained. But note that many checking accounts pay minimal or even zero interest, and regulations do not require institutions to offer interest payments on checking accounts.

Checking accounts may charge fees, including monthly maintenance charges; however, fees may be waived if you maintain a minimum balance or set up recurring direct deposits. You can be charged for money orders or cashier’s checks, and there may be limits on the amount you can withdraw in a given day or per ATM visit. Writing checks or swiping your debit card for amounts you don’t have can result in costly penalties like overdraft fees, insufficient-funds fees, or returned-check fees.

When to open a checking account

  • Checking accounts are one of your most important personal finance tools. This is where you manage the money you earn and spend on a day-to-day, week-to-week basis.
  • If you’re earning a low APY or earning no APY on your checking account, now might be the right time to examine your options. There are plenty of high-yield checking accounts available on the market today.
  • Look for checking account with zero fees. There are simply too many zero-fee options for you to be paying monthly account fees for your checking account.

Savings accounts

Savings accounts are demand deposit accounts that offer interest on your balance. Interest may be compounded daily, weekly, monthly, or annually. The benefits of savings accounts can vary widely based on requirements for a minimum opening deposit, monthly service fees, interest rates, and how the interest is calculated.

Savings accounts aren’t meant to offer the ease and frequency of access you get with checking accounts, but some do offer debit cards and even checkbooks. The Federal Reserve’s Regulation D mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. If you exceed your transaction limit, the bank may charge you a fee, close your account or convert it to a checking account, so check with your bank about requirements and penalties.

When to open a savings account

  • You may want to look into moving your savings into a high-yield savings account if you can get a better rate than what you’re earning with your current savings account.
  • When considering a new savings account, look for the highest possible APY you can find — most often, that means looking at our list of online savings accounts, which we have found consistently offer the best rates in the business.
  • Skip accounts with any monthly maintenance fees, as they eat into your returns. Also keep an eye on minimum balances to earn the highest possible APY.

Money market accounts

A money market account (MMA) is a high-yield deposit account that offers interest rates very similar to those offered by savings accounts. Money market accounts often provide access to your funds via debit cards or checks. However, like savings accounts, they too are subject to Regulation D which mandates certain types of telephone and electronic withdrawals, including transfers from savings accounts up to 6 per statement cycle. You should check with your credit union or about any transaction limits and potential penalties. Minimum deposit requirements for MMAs are frequently higher than those for savings accounts.

When to open a money market account

  • Money market accounts have many of the same benefits and restrictions as savings accounts. MMAs generally require higher minimum deposits to open than savings accounts, and in exchange for that, you may be able to secure a higher APY. If you have a large sum you wish to keep as a liquid asset, a money market account may be your best option.
  • If you need easy access to your funds, a debit card or even a checkbook can be reasons to choose an MMA — although many savings accounts offer these conveniences as well.
  • Like with savings accounts, you need to understand the minimum balance required to earn the account’s highest advertised APY.

Certificates of deposit

Certificates of deposit (CDs) offer a way to earn higher rates of interest than those offered on savings accounts. CDs are time deposits, with common terms between one month and ten years. With a CD, you cannot withdraw money before the CD matures without incurring a penalty.

Penalty rates vary across the industry and by CD term length, but penalties generally amount to losing some or most of the interest you’ve earned on your investment at the time you withdraw. The interest rates are fixed over the term of the CD. The CD may automatically renew upon the maturity of the original deposit, so check with your bank or credit union for details.

CDs are insured by participating institutions up to the legal amount per account, per institution by the FDIC for banks and the NCUA for credit unions. Larger principal deposits and longer terms may fetch more competitive rates, although investors need to be sure they are comfortable losing access to their money for long durations.

You can stagger multiple CD maturity dates to create a CD ladder as a way of maintaining liquidity, capitalizing on increasing rates, and hedging against falling rates.

When to open a certificate of deposit

  • CDs are only a good option if you don’t need access to your money for whatever term you choose — either a short-term certificate with a term numbered in months, or a long-term CD lasting years.
  • Some CDs offer higher interest rates than savings accounts. Again, though, you must be prepared to leave your funds untouched for the term of the CD. Beware of high penalties for early withdrawals, before the end of the CD’s term.
  • Locking your money up in CDs could be a good strategy when market interest rates are falling: You can maintain a higher APY while other deposit accounts see declining rates. Conversely, they might not be the best choice when market rates are rising: By locking in a CD, you might miss out on higher APYs on other deposit accounts from higher rates.

Individual retirement account CDs

Individual retirement accounts (IRAs) are tax-advantaged vehicles designed to help people save for retirement. With an IRA CD, you may use funds saved in your IRA to invest in designated CD products. Credit unions, banks and brokerage firms offer IRA CDs, available as either traditional IRAs or Roth IRAs.

IRA CDs share most characteristics with regular CDs. IRA CDs may renew automatically like traditional CDs, so it’s important to keep track of your CD maturity dates so you can make educated investment decisions when the CD term ends. Keep in mind that deposits into an IRA account are subject to annual IRA contribution limits.

Like regular CDs, IRA CD investors need to beware of early-withdrawal penalties. Not only are there penalties for withdrawing from the CD before it matures, but if you remove the funds from your IRA, there is an IRS tax penalty of 10% on any distribution you take before you reach 59½ years of age. Still, the IRS may waive early distribution penalties for certain situations, such as a withdrawal of funds applied to a first-time home purchase.

When to open an IRA CD

  • IRA CDs are a great option for conservative retirement investors who want a decent rate of interest, without exposure to volatile stock or bond markets. 
  • Unlike stock and bond investments in IRAs, IRA CDs are insured by the FDIC and NCUA up to the legal amount per account, per institution.
  • Like standard CDs, IRA CDS prevent you from accessing principle for whatever term you choose.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Yolander Prinzel
Yolander Prinzel |

Yolander Prinzel is a writer at MagnifyMoney. You can email Yolander here

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Strategies to Save

Fresh EBT App Review

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The government distributes Supplemental Nutrition Assistance Program (SNAP) benefits — also known as food stamps — via Electronic Balance Transfer (EBT) cards. The Fresh EBT app allows recipients of SNAP benefits to use a smartphone to check the balance on their EBT card. The Fresh EBT app has more than 2 million users and works with food stamp programs in every state.

What is the Fresh EBT app?

Until recently, people who receive SNAP benefits could only check their monthly benefit balance by calling a hotline — or keep a running tally of their grocery store receipts. More than 42 million people receive SNAP benefits, and 26% of low-income Americans rely on cell phones as their main internet connection.

In 2015, software startup Propel launched the Fresh EBT app, providing a quick and easy way for people who receive SNAP benefits to check their EBT balance. Users can also check their benefits from other federal programs, like Temporary Assistance for Needy Families. The free app is available for both iOS and Android and can be downloaded from the iTunes app store and the Google Play site.

Fresh EBT lets people keep up with the benefits available to them and also lets them see what they’ve purchased and where they bought it. The app also shows nearby stores and farmer’s markets that accept food stamps — although it doesn’t indicate which items are eligible to be purchased with funds from federal assistance programs.

How Fresh EBT works

The Fresh EBT app is linked to a user’s card via their state of residence’s EBT portal. Every time someone uses the card at a grocery store or farmer’s market, the total adjusts and users can check their remaining balance on the app.

When you log in, you’ll see a “recommended weekly budget” right underneath your EBT balance. This can help you plan your monthly EBT balance ahead of time, so that you don’t run out of money before the month is over. If you stick to this number each week, you’ll have enough EBT money to buy food for the whole month.

Other Fresh EBT features include free affordable and nutritious recipes and digital coupons you can use to make your EBT dollars stretch even further. Plus, as the average monthly SNAP benefit for one person is $134, Propel has partnerships with local and national nonprofits like Feeding America and Double Up Food Bucks to help people who find their SNAP benefits aren’t enough to get them through the month.

The app also shows the locations of nearby food pantries, offers coupons for participating retailers — users have accessed close to $15 million in savings so far — and provides access to healthy and inexpensive recipes.

The Fresh EBT app even touts that it offers job postings. You can see a list of jobs available in your area, along with a link that’ll take you to that job posting’s webpage. From there, you can get more information about the job and even apply directly for it.

How to sign up for Fresh EBT app

To use the Fresh EBT app, you must provide sensitive personal information like your Social Security number, although Propel reports that the information is encrypted. You also will need to have your EBT card number and PIN handy when you sign up. However, Propel notes that it does not store EBT card numbers or PINs on their servers, for extra security.

Although the Fresh EBT app is available to all U.S. states and territories, there have been problems in the past for some users who live in one of the 25 states where the food stamp program is managed by the government contractor Conduent.

Some users in these states reported that their balance data was unavailable for large stretches. And while Conduent does offer its own balance checking app, ConnectEBT, it’s only available in seven states on the Google Play store — Arkansas, Maryland, Maine, Oklahoma, South Carolina, Tennessee, and Utah. If you’re using an iPhone or iPad it’s even worse: the app is only available in three states: Oklahoma, South Carolina, and Utah. But while people can always check their balances through the hotline if they have any Fresh EBT app troubles, it’s also a good idea to hang on to grocery receipts as a backup.

Pros and cons of Fresh EBT

Among the common complaints about the Fresh EBT app are discussions about difficulties in connecting, or getting locked out of an account and having trouble signing back in. Positive reviews note the ease and speed of the app in comparison to calling the hotline to check a balance. Many users also like the coupons, the ability to see past purchases, and the recipes.

Pros of Fresh EBT

  • Provides a great way to check updated food stamp benefit balances: You can see your balance instantly, without having to call up the EBT hotline or finding your balance at the bottom of the receipt from your last food purchase.
  • Maps nearby food pantries and stores that accept food stamps: You can search on a map to see nearby stores and farmer’s markets where you can use your food stamp benefits. You can also find nearby food pantries, food stamp offices, and WIC clinics.
  • Offers digital coupons: You can download coupons for specific food items at specific stores right through the app. This can also help you make the most of your EBT benefits.
  • Special offers: In the “All Offers” section of the app, you can find other helpful money-saving resources for lower-income families. For example, you can get more information about discounted Amazon Prime membership, or access to lower-cost cell phone services.
  • Available in every state, with versions in English or Spanish: No matter which of these languages you speak — you can use Fresh EBT. And unlike some other EBT balance-checking apps, Fresh EBT is available no matter which state you live in.

Cons of Fresh EBT

  • Can have some bugs and loading issues: Since each state manages its own EBT program, there are a lot of different technologies that the Fresh EBT app has to navigate. Sometimes that can cause some difficulties with the app. For example, Conduent is a company that manages EBT benefit information in many states and it’s had some troubles in keeping up with Fresh EBT, causing some users to not see their current balance in the app for a period of time.
  • Does not provide a list of items that can be purchased with food stamps: The app can tell you which stores allow you to use your EBT benefits, but it isn’t able to tell you how much items cost there. Some stores can charge a higher price than others.

Who should use Fresh EBT?

Anyone who regularly uses SNAP food stamp benefits through an EBT card, owns a smartphone and wants an easy way to keep track of their benefits will likely find the Fresh EBT app useful.

The app saves you money by offering coupons and directing users to stores offering specials. The app is also a one-stop shop for other information about early childhood education programs, local doctors, mental/health substance abuse programs, heating assistance and more.

All told, the Fresh EBT app is an efficient and data-driven way for people to get the most out of their SNAP benefits.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here