Question

Many people put aside money to take care of unexpected expenses. If Pedro and Susanna have money to put aside for emergencies, in which of the following forms would it be of LEAST benefit to them if they needed it right away?

Answer 1

The least beneficial form for emergency savings would be in accounts that are not easily liquidated or have early withdrawal penalties, such as retirement accounts or volatile investments. It is wiser to keep emergency funds in highly liquid accounts like savings accounts or money market accounts for ready access without penalties.

Step-by-step explanation:

If Pedro and Susanna need to access their emergency savings immediately, the least beneficial form to have their money saved in would be in investments that are not easily liquidated or may have penalties for early withdrawal. Such forms could include retirement accounts like 401(k)s or IRAs where withdrawing before a certain age can incur penalties, or investments in real estate which cannot quickly be converted to cash without a potential loss. High volatility stocks might also be less ideal as they could be at a low point when the cash is needed urgently.

It is generally advisable for emergency funds to be kept in highly liquid forms where the money can be accessed without delay or financial penalty. Options such as savings accounts, money market accounts, or short-term certificates of deposit (CDs) are more suitable as they allow for quick access and generally do not involve a risk to the principal amount. Planning ahead and choosing the right place to save can safeguard against being in a difficult situation when unexpected expenses arise.