Do you have sufficient funds set aside in case of a crisis? You never know when you might find yourself caught in an unexpected situation, which is when an emergency fund can come to your rescue. With The National's recent launch of The Debt Panel - a column featuring four financial experts who will advise readers on how to solve their debt woes - it's become apparent that many UAE residents have not made adequate provision for the never never. Here the team from the price comparison website Souqalmal.com outline why it's key to set up an emergency fund in the UAE.
An emergency fund is a stash of money set aside for a rainy day. It’s a pool of money specifically dedicated to help you out in times of a crisis. The money should typically be able to cover your expenses for a period of between three to six months’ before you find a more permanent solution. Here are a couple of scenarios when you might need an emergency fund:
If you lost your job?
Have you ever considered what would happen if you lost your job? What if it takes a while to find a new position, how would you manage your expenses? An emergency fund can make sure your expenses are covered until you find a way to get your career back on track.
If you are in poor health
Although health insurance is mandatory in the UAE, what happens if you exceed your maximum cover or if your policy doesn’t include treatment for a certain medical condition? If you or an immediate family member need to undergo a specific treatment, you will need the funds to pay for any additional treatment. And in case your spouse passes away, all assets belonging to your spouse will be frozen. Again, in this situation an emergency fund will take care of your finances, while you get the paper work in order. Dealing with an unexpected event can be extremely stressful, both emotionally and financially. With an emergency fund you’re prepared for the future as it gives you confidence to tackle such events.
But where is the best place to keep that back up money? Here are some options to store your emergency fund:
• Standard savings account
Getting a savings account is an obvious option and is certainly better than stashing your emergency fund under the mattress. The purpose of the fund is to provide instant access to cash when you need it, which is well served by a savings account. Generally in the UAE, interest/profit rates on savings accounts range from 0.01 per cent to 2 per cent per year.
• National Bonds
The National Bonds savings scheme offers customers a chance to earn on their savings and win prizes through monthly draws. The products have various tenures and amount preferences and can be bought from 709 outlets across UAE. Each bond costs Dh10 and the minimum required purchase of National Bonds is Dh100. In 2015, the company offered an average annual return of 2.82 per cent on regular savings.
• Prize-linked accounts
A few banks in the UAE offer prize-linked accounts, giving you a chance to win prizes such as Dh1 million in cash. Other prizes include winning grand prizes of up to Dh3 Million, a luxury car or studio apartment with other multiple cash giveaways ranging from Dh5,000 to Dh10,000 through daily or monthly draws.
• Fixed deposits
If you aren’t satisfied with the returns on a savings account, you can opt for a fixed deposit account. What you earn will depend on the deposited amount and the tenure you select. With over 157 fixed deposit accounts listed on Souqalmal.com, most banks in the UAE offer short-term and long-term fixed deposit products with a choice of flexible tenures, which start from a week and go up to five years. Keep in mind, banks may penalise you if you wish to withdraw money before the end of the tenure.
pf@thenational.ae
