What’s the best way to store my emergency savings? In a savings account at the bank or in an investment vehicle? IC, Dubai
Founder of Wise
Emergencies are, of course, unexpected and with spare cash stored away you can build some resilience against whatever life throws at you. Think about the short-term and longer-term problems you might face. For each one, plan how much money you will need, how quickly you will need access to it and therefore where you should keep it. The longer you can put money away for, the harder it will work for you in generating a profit. However, emergency money often has to be accessed quickly, so it won’t make you as much as your longer-term savings. Therefore you don’t want too little saved for emergencies, but you don’t want too much either. I recommend three types of emergency fund:
1. The airport fund
Keep enough cash at home to get to the airport in an emergency, no matter how crazy the situation. Five Dh100 notes should be enough. Keep it with your passport in a place where you can grab it quickly.
2. The local emergency fund
This fund should cover three to six months of major expenses such as rent, car, credit card or loan payments, food, phone, utilities etc. The money will help you survive in case you lose your job and it will also cover unexpected hits like hospital bills. If you have a job that is so specialised or competitive that it would be hard to find another position in the UAE or elsewhere, save more than three months.
Keep at least a week’s expenses in your current account or an instant access savings account. The rest must be accessible within one to three days. Ideal for this is a savings account that gives you a higher interest rate if you don’t make withdrawals, but still allows you to access the money quickly if you have to – comparison sites such as Souqalmal.com have search functions to help you find the right account. Any account or investment where you can’t get cash in less than a week should be avoided. Investing in stock or bond ETFs via an offshore brokerage would still just qualify, but you run the risk of the investment’s value being down at the time of need.
3. The international emergency fund
Many expats still have a bank account in their home country. Make sure you have enough in there to survive a week at home in case your UAE cards don’t work. If you don’t have a home account, an offshore account outside the UAE is a must.
Founder of Savememoney.ae
Since moving to the UAE in 2010, I have kept at least three months’ salary aside to be used should I need it. Personally, my emergency pot is stored in an account in my home country, for which I have a debit card. However, other options include:
UAE savings account
Few accounts today, either in the UAE or elsewhere, offer interest values that will generate much of a return unless you’re saving millions. Savings accounts, however, can be useful vehicles. They can be linked to your current account, in most currencies, and you can move your money from one account to another with ease. However, there is a risk it could be frozen if you lost your job.
I’m constantly contacted by wealth managers, so access to investment vehicles in the UAE is easy. My main issue is that the investments offered – which are normally pushed by wealth management firms – lock you (and your money) up for a period of five to 25 years with huge penalties should you wish to release your savings earlier than the fixed term. Recently I set up an account with Swissquote; this came with an offshore bank account and investment platform which doesn’t have a mandatory term for your investment.
RG, Abu Dhabi
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