In the previous module you built your emergency fund — but where should you keep it? If it is sitting in a standard current account earning nothing, it is like losing money little by little: inflation erodes it gradually. The ideal option is to keep it in an interest-bearing account, where the money remains instantly available and also earns a small interest that partly compensates for that effect. Part of it can also go into short fixed-term deposits.
The alternatives that do pay interest:
- Interest-bearing accounts: Bank accounts — often at neobanks or online financial platforms — that pay you an annual percentage simply for keeping your money there. How much they pay depends on the country and on its central bank's interest rates. Total liquidity: you can withdraw at any time.
- Fixed-term deposits: You give your money to the bank for a fixed period (for example, 6 or 12 months) in exchange for slightly higher interest. If you need the money before the term ends, depending on the country and the product the bank will charge you a penalty or simply not let you withdraw it until maturity.
Any money you might need within 1–2 years should not be in riskier investments. And if it is going to sit idle anyway, it could at least be in an account that pays interest — keeping it in a current account at 0% is one of the worst options.
You have $5,500 as an emergency fund. In your traditional bank, those $5,500 generate $0 per year. In an interest-bearing account at 2.5% per year, they would generate $138 (before tax) — without doing anything and with the money available at any time.
There is a dedicated module on interest-bearing accounts and deposits further ahead, where you will go deeper into how they work and how to choose the best product.