High Interest Savings Accounts
High interest savings accounts are an important part of any successful debt reduction strategy. Planning and saving for expenses is vital, but what about the unexpected emergencies that come up at the very worst time? Having a good financial plan including an emergency fund will do more for your debt reduction progress than just about anything else you can do.
Having an emergency fund is important for several reason, none of which is larger than having the ability to borrow from yourself if an emergency comes around rather than having to put that expense on a credit card. Everyone has had a car break down or an air conditioning unit go out in the middle of the summertime. Large expenses that were not in the budget and can cause a financial hardship happen to everyone, but being able to borrow from yourself is a key to dealing with these expenses successfully.
If you haven't started a high interest savings account yet make that your first priority once your budget is set and you are comfortable with where your money is being spent each month. A high interest savings account is like a security blanket for your money - keeping all those bills warm and toasty while they earn you interest. Compared to a standard savings account from the bank that may pay 1%-2% a high interest savings account usually pays between 3%-5% and are usually just as flexible as a standard account.
Look for a high interest savings account that does not charge fees or have any minimum balances. It is also important that you can link it to your checking account so that the money is accessible if you need it. While there are many good high interest savings accounts available you may want to begin your search for an account at www.ingdirect.com. ING has a very good high interest savings account called the "orange savings account" which doesn't have minimums or fees and comes with some pretty flexible options for you to save your way.
The point of having a high interest savings account is to be able to start saving and ultimately create a solid emergency fund. A good emergency fund goal should be $1000 which will cover most large expenses should they arise. Instead of paying extra on your different bills, make the emergency fund your first priority until you can get together at least $1000 to keep in a high interest savings account - should the need arise.
By having a cushion in savings you are able to pay for the situation instead of putting the expense on credit. While this makes you more financially viable because you have the circumstance paid for you also don't lose ground by having to pay back the initial expense with interest. By borrowing from yourself you "save" the interest you would normally have to pay as well as keep the time you would have spent paying the money back.
While $1000 is a good start ultimately you need to save 3-5 months worth of living expenses as a future goal. If you have outstanding debt then get your $1000 emergency fund together using a high interest savings account and then begin hammering away at your debt. Once your debt is paid off you can begin a savings plan for your long term expenses and other investments.