Are you into crypto? Or are you at least planning on buying it anytime soon? Then, you should know this basic rule for investing in cryptocurrency: never use it for your emergency fund.
Why Cryptocurrency Isn’t Good for This Option
Cryptocurrency isn’t exactly a stable investment. The value of your investment could suddenly plummet and stay down for a long time. Currently, experts are describing the crypto market as a prolonged bear market — this means that prices are continuing to fall and investors are selling instead of buying.
Risk of Loss
The state of crypto is like the Wild West. The market is new and full of risks that you might not encounter with standard currency. There’s a real possibility that a crypto company can fail, and you can lose your investment. For instance, the collapse of the crypto exchange FTX has led to customers losing their assets.
You will have a hard time finding businesses that accept cryptocurrency as a form of payment. Even the ones that do may only accept a certain form of crypto (for example, Bitcoin) — not all forms of it. The services you may need to pay for in an emergency are unlikely to accept anything beyond cash, debit or credit as payment.
The Cash Out Process
Since you might not be able to cover your emergency expense with cryptocurrency, you will want to exchange your investment for its cash value. You will have to go to a centralized exchange site to sell the amount of crypto that you need. Once you get the cash balance from your sale, you will have to transfer those funds into your bank account.
The process isn’t instantaneous. According to the centralized exchange site Coinbase, it could take 1-5 business days for your funds to arrive in your bank account. This isn’t an ideal timeline when you’re in the midst of an emergency.
A Better Option for Emergency Funds
Your emergency fund should be a collection of personal savings sitting inside a standard savings account. A standard savings account will not offer opportunities for fast growth, but it will provide minimal risks. This is ideal for an emergency fund.
As long as the bank is insured by the Federal Deposit Insurance Corporation, you don’t have to worry about losing your funds in the worst-case scenario. If the bank fails, you won’t lose your savings — they can be transferred to a different savings account. The FDIC offers coverage for up to $250,000 in savings.
Another benefit that comes with standard savings accounts is that they are accessible. You can transfer or withdraw the funds that you need quickly.
What If You Don’t Have Enough Savings?
You might not have enough savings in your emergency fund at first. It will take time to make enough contributions to create a reliable safety net. Don’t rush into cryptocurrency to try to speed up this savings process — as you can see, crypto isn’t an effective solution for emergency funds.
If you’re ever in a situation where you don’t have enough savings and an emergency expense crops up, you can turn to an alternative payment method for help, like an online personal loan. You can learn how to get a loan online to see what steps you would need to apply. The information could come in handy in an emergency.
Online loans should only be used for urgent, unplanned expenses. They’re not meant for everyday expenses, like groceries and utility bills.
Cryptocurrency and emergency funds are like oil and water. They don’t mix. So, use your crypto for other goals!