04 Saving and Emergency Funds Free Online FlashCards

What is an emergency fund?

An emergency fund is money set aside for unplanned expenses or a loss of income.

What factors can help determine an emergency-fund target?

Consider essential monthly expenses, income stability, insurance deductibles, household needs, and past unexpected costs. There is no single amount that fits everyone.

What qualities should an emergency-fund account provide?

Keep it safe and readily accessible; avoid putting the entire fund in volatile investments or products that delay or penalize withdrawals.

What details make a savings goal specific?

Name the purpose, estimate the cost, set a target date, and calculate a regular contribution.

How can you estimate the regular contribution for a savings goal?

Divide the amount still needed by the number of saving periods. For example, saving $\$1{,}200$ over $12$ months requires about $\$100$ per month before interest.

What kind of approach generally suits a goal within about five years?

For goals within about five years, generally favor stable-value savings products with suitable access over investments that could fall in price when the money is needed.

What is the main access trade-off of a certificate of deposit (CD)?

A CD generally commits funds for a set term; early withdrawal may cost a penalty or interest. Match its maturity date to when you need the money.

What is the general FDIC coverage limit for covered deposit accounts?

At FDIC-insured banks, savings accounts, money market deposit accounts, and CDs are generally covered up to $250,000 per depositor, per insured bank, per ownership category.

How does an emergency fund differ from savings for predictable expenses?

An emergency fund covers unexpected costs, while predictable expenses—such as an annual insurance bill—should have separate savings plans.

What should you do after using money from your emergency fund?

Replenish the fund over time so it can help with future financial shocks.

Why might you keep emergency savings in a separate account?

A separate savings account can make the fund easier to distinguish and reduce the temptation to spend it on non-emergencies.

What can you change if a savings goal’s required contribution does not fit your budget?

You could extend the deadline, lower the target, or find ways to increase contributions.