On the flip side, your Emergency Savings could be kept in an account that is higher performing. We use the words ‘high performing’ loosely here. Generally, interest rates are currently so low that the rates on offer from even fixed-term accounts make only a marginal difference.
Fixed-term savings accounts will typically lock your money away for one or two years and sometimes more. For that reason, they kind of defeat the point of Emergency Savings that need to be accessed quickly.
Alternatively then, you may consider a Stocks and Shares ISA investment wrapper. In this case, you would be investing your money in the stock market.
The good news is that returns are typically far higher. If you assume an average return of 8% over the long term, this will likely outperform current inflation.
On the downside, it usually takes a few weeks to withdraw your funds. So, you’d have to have a plan if you need quick cash in the meantime.
In addition, the stock market, by its nature, is volatile. As a result, when the time comes and you need the money, you may actually have less than what you originally put in.
Most investors in stocks and shares are looking to hold for at least five years and for that reason, it is not commonplace to store Emergency Savings here (except for where credit it used – see next section).