You will be able to choose a place for your emergency fund that you can reach quickly without losing value.
The day you need your emergency fund is usually a bad day already. A retrenchment letter, a hospital admission, a burst pipe in the flat upstairs. On that day you do not want to find out that the money takes two weeks to reach you, or that it is worth less than you put in, or that you spent half of it last month without noticing.
Where you keep the fund decides all three. This lesson gives you the test to apply to any account you are considering.
An emergency fund has two jobs, and both have to work on the worst day.
It has to be available within days. Some emergencies need cash straight away, such as a deposit for a hospital stay or a repair you cannot postpone. Others, like a job loss, give you a little more time, but not months.
It also must not fall in value. You set a target in lesson 3.1 because that is what you expect to need. If the fund drops by a fifth in a market fall, which is exactly when job losses tend to happen, the target means nothing.
Interest comes third. A better rate is worth having, but not at the cost of either of the first two.
Savings accounts and short-term fixed deposits meet both tests, which is why they suit an emergency fund. A savings account gives you the money the same day. A fixed deposit usually pays more but locks the money until a date, and breaking it early typically means losing some or all of the interest. Some people keep one month in a savings account and the rest in a short fixed deposit. The second part takes a little longer to reach, and they accept that for the extra interest.
Deposits in Singapore dollars at banks and finance companies that are members of the Deposit Insurance Scheme are insured by the Singapore Deposit Insurance Corporation, or SDIC, up to a limit per depositor at each member. If a member bank failed, insured deposits would be paid back up to that limit.
Check three things on the SDIC website, sdic.org.sg. The first is whether your bank is a member, since the website lists them. The second is the current limit, which is set by the scheme and has changed before, so look it up rather than relying on a number you heard. The third is what counts: Singapore dollar savings and fixed deposits are covered. Foreign currency deposits, structured deposits and investment products are not, even when a bank sells them.
The limit applies to the total you hold at one member, however many accounts it is spread across. If your emergency fund is in one account and your other savings in another account at the same bank, add the two together. Say Darren keeps his S$13,150 emergency fund and S$20,000 of other savings at the same bank, with figures made up for the example. That is S$33,150 against one limit. If his total at one member ever exceeds the limit, the excess has no deposit insurance, and spreading it across members fixes that.
Keep the fund in its own account, separate from the account you spend from. If the emergency fund sits in your spending account, the balance looks large, and a large balance makes it easy to say yes to a flight sale or a new phone. Over a few months the fund shrinks without anyone deciding to spend it.
A separate account, ideally one with no card attached, adds a small step between you and the money. That step is enough to stop accidental spending while still letting you reach it in an emergency. Many people keep it at a different bank from their everyday account for the same reason, as long as the transfer between them is quick.
Some places look like savings but fail one of the two tests.
Investments, including shares, funds, ETFs and robo-advisor portfolios, can fall in value at exactly the wrong time, and selling takes a few working days. Cash management products that invest in money market funds may look like a savings account in an app, but they are not deposits and SDIC does not cover them.
CPF cannot be withdrawn for an emergency. Most of it stays locked until set ages and set uses, as module 5 explains.
Long savings plans and endowment policies lock the money up for years, and surrendering one early usually returns less than you paid in.
None of these is a bad thing to own. They are simply the wrong place for money you may need next week.
You now have a short test for any account: how fast you can get the money out, whether its value can fall, and whether SDIC covers it within the limit, with interest as the tiebreaker after those. Open the product pages for the accounts you are considering, or the account you already use, and find those details for each.
Pick the account for your emergency fund and write down how fast you can withdraw, its interest and its SDIC status.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).