YOUR MONEY: What to do with your emergency fund

Question:

I have R100,000 in a normal bank savings account. This is my emergency fund. Where is a better place to put this money? Should I split it up or is it better to keep the full amount in one place?

— A Fat Wallet Facebook community member

Answer:

The question around splitting the money is valid and interesting. First, we now have the Corporation for Deposit Insurance which is essentially deposit insurance for bank deposits. This was introduced in April and protects an individual for up to R100,000 if their bank goes bust. So the R100,000 emergency fund is safe.

The other consideration is when you’d need the money and what rate you’re getting. With the current high rates it is worth shopping around to see what rates are being offered by different financial institutions. An extra 1% a year is R1,000 and not to be sniffed at.

But also consider if the money needs to all be in a savings account, which typically pays a lower interest rate. You could, for example, stagger the money with a third in a savings account and the other two-thirds in 32-day and 90-day call accounts.

This covers you with R33,000 immediately in an emergency and the rest within 32 and 90 days. Many an emergency would be covered by the money in savings, and if it’s a real crisis most institutions will lend against the notice deposits or allow an early withdrawal for a modest fee.

— Simon Brown, Just One Lap

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