Emergency Fund: A Guide to Affording Urgent Care

Financial resilience in the face of medical adversity is more than just a prudent choice; it is an integral aspect of managing personal finances. 

Possessing an emergency fund specifically allocated for health-related urgencies ensures that individuals are not caught off guard by the high costs associated with medical care. 

This article provides an in-depth guide on establishing a robust emergency fund, detailing the importance, step-by-step building strategies, best practices for managing the fund, and insights on utilizing the accumulated resources responsibly.

Understanding the Importance of a Medical Emergency Fund

Creating a robust emergency fund is essential to ensure financial stability during unforeseen accidents and medical emergencies. This fund acts as a financial safety net, meant to cover those big medical bills and several months of living expenses so that your normal savings stay untouched, providing peace of mind in times of distress. 

A prudent approach involves regularly setting aside a portion of income and gradually building up savings to mitigate the shock of unexpected costs. 

The objective is to establish a reservoir of funds that can be accessed quickly and without incurring debt, underlining the critical nature of preparedness in personal finance.

Building Your Emergency Savings

To begin the journey toward a secure emergency fund, it is advisable to evaluate current spending and identify areas where expenses can be reduced. 

Examine monthly bills for services that may not be necessary or could be substituted with more cost-effective alternatives. After reducing expenditures, redirect those savings into a separate, easily accessible account dedicated to emergencies. 

This strategy not only builds the emergency reserve but also instills disciplined financial habits that benefit overall financial and economic well-being.

Knowing When to Utilize Your Emergency Funds

In determining the appropriate circumstances for drawing upon emergency funds, consider only severe and necessary situations to avoid depleting this vital resource. 

This could include significant medical procedures not covered by insurance or urgent care visits that cannot be claimed. The purpose of these funds is to render borrowing or incurring high-interest debt unnecessary when paying the large sums that are characteristic of healthcare bills, thereby preserving long-term financial health. 

It is recommended to review the emergency fund periodically to ensure it aligns with current financial requirements and to replenish it as soon as you can after use.

Managing Your Emergency Fund: Best Practices

To manage an emergency fund effectively, individuals must prioritize security and liquidity when selecting an account type. High-yield savings accounts are a preferred option; they offer higher interest rates than traditional savings accounts while ensuring funds remain readily accessible. It's equally important to keep this fund separate from other savings to prevent unintentional use for non-emergencies. 

Additionally, automatic transfers can simplify the savings process, enabling a consistent and reliable method of contributing to the emergency fund without manual intervention.

Final Thoughts

In conclusion, having a well-established medical emergency fund is a cornerstone of sound financial planning. It ensures that unexpected medical events do not become financial burdens, allowing individuals to focus on recovery rather than cost. 

The practices outlined herein serve as a blueprint for building and maintaining a reserve ready to address contingencies. As part of routine financial assessments, consider the health of your emergency fund and adjust contributions to stay in step with life's evolving demands. 

Remember, the peace of mind and financial security afforded by an emergency fund are invaluable investments in your future well-being.

What are the best short-term investment options?

Several short-term investments are designed to provide significant returns over a reasonably short period. Specifically, these plans are designed to meet the expenses expected to occur shortly, and you can start investing in short term investment options with a minimum fixed deposit amount.

It is common for investors who are more inclined towards short-term investing options not to be interested in waiting for years to see their money multiply many times over rather than waiting for long periods. As a result, they are more interested in quick and effective results with minimum fixed deposit amount.

One can expect optimal results from short-term investment plans to meet one's financial goals and minimum fixed deposit amount. Still, it will not produce massive results as long-term investment options. 

Short-term investment plans have a lower risk profile because of the minimum fixed deposit amount than long-term, which is why many seasoned investors are attracted to them due to their lower risk.

Listed below are a few options for the best short-term investments

Savings accounts

Having a savings account is one of the easiest and safest methods by which you can easily access your money. There is mainly a concern here with liquidity, not so much with earning. A standard savings account return does not exceed 4% to 7%.

Liquid Funds

The purpose of these mutual funds is to invest in short-term government certificates, and securities of deposit with a minimum fixed deposit amount to increase the return on investment. 

It is safe to enter and exit these investments anytime as they are secure. Investing in liquid funds can yield an expected post-tax return of between 4% and 7%. 

There are a variety of liquid funds that investors can use to park money for as little as one day, as much as 90 days, or even beyond.

National Savings Certificate

Investing in a five-year postal NSC is also an option if you are confident that the goal will be achieved precisely five years from now. Under Section 80C of the Income Tax Act, you can claim a tax deduction, but the interest will also be taxed.

Arbitrage funds

The term arbitrage fund is also known as equity mutual funds, and if a fund is held for more than a year, it is more tax efficient. They are estimated to give approximately 8% of interest after paying the tax.

Fixed maturity plans (FMPs)

This type of investment has a lock-in period of a minimum of 3 years and works like a fixed deposit at your bank. Although they are more tax-efficient, you can expect better returns when investing in them than a fixed deposit.

Short term funds

A short-term fund invests in securities that are expected to mature within 1 to 3 years. As the maturity of securities in these funds is higher than those in ultra-short-term and liquid funds, they are a bit riskier. 

There is no difference in taxation between debt funds and other types. It is essential to remember that banks offer deposits with a range of timeframes, starting with a minimum of 7 days.

Recurring deposits

It is a type of secured investment that can be used by people minimum fixed deposit amount who are not interested in investing in a lump sum but instead would like to invest monthly. RD can help in making a better retirement investment strategy. Regarding RDs, you can either use postal RDs or bank RDs; typically, banks offer RDs for minimum tenures of 6 months to a maximum tenure of 10 years.

Debt Mutual Funds

Most of the money in these mutual funds is invested in debt instruments such as government bonds, commercial papers, treasury bills, corporate bonds, and similar investments to other money market products. 

Those who are risk averse and are looking for better returns in the short term with a minimum fixed deposit amount can benefit significantly from this type of short-term investment.

Which is the Best Choice to Invest? FD vs Savings Accounts!

Investors prefer risk-free investment schemes that offer maximum return against the money they put in. There are several such schemes available in the Indian financial market.However, fixed deposits and savings accounts are by far the most preferred options amongst them.

FDs are a form of term deposits that allow you to invest a certain amount for a fixed tenor. That amount earns interest over the period,and you receive the accumulated return along with the principal amount when the FD matures.





A savings account is a type of deposit account provided by various financial institutions.You can earn a modest rate of interest against your funds; however, the percentage is significantly low compared to the FD interest rate.

Both fixed deposit and savings account have several features and benefits that might be useful for certain types of investors. You should carefully consider the advantages of both these schemes to determine where to invest in.

Here are some of the features that differentiate between fixed deposits vs savings accounts.

FD vs savings account

• Interest rate – FDs generally offer a higher interest rate than a savings account. Certain financial institutions offer up to 8.75% interest on FDs. And, savings accounts come with up to 4% interest per annum, although this rate varies between different financial organisations and can change according to the amount you deposit.

The higher interest rate of FDs allows you to grow your invested amount much quicker. It is one of the primary reasons why people prefer fixed deposits over a savings account while investing for a longer term.

• Assured return –Fixed deposits are independent of market fluctuations which make them ideal for investors who want a guaranteed return. The rate of interest is decided when you open the scheme and stays fixed throughout the tenor.

Savings accounts offer either fixed or floating interest rates. Floating rate of interest is market dependent and can decrease if the financial market takes a hit or the government decides to reduce the repo rate. It makes savings accounts comparatively more vulnerable to market fluctuations.

• Benefits for senior citizens – Both FDs and savings account offer several add-on benefits for senior citizens. For example, the Fixed Deposit for senior citizens offered by Bajaj Finserv accrues0.35% additional interest rate above the regular amount, increasing the total rate to approximately 9.10%.

Savings accounts generally offer benefits such as higher withdrawal limit and interest rate for senior citizens.However, maintaining a savings account can often be difficult for a retired person.

On the other hand,in an FD, the full investable amount is deposited at a time while opening the account. Hence, it is ideal for senior citizens as they can put in a huge portion of their savings and allow it to accumulate interest over time.

Also, FDs are ideal for someone who wants to invest a sum of money and earn a guaranteed return when the scheme matures. It can significantly increase the investor’s wealth and help him or her achieve financial freedom in a short period.