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An emergency fund should be accessible at any time to help in unpredictable situations. But what happens if you accidentally lock in your savings for a specific term, making it inaccessible in your time of need? It’s more likely than you think.

Locking in your emergency fund can happen to anyone who doesn’t read the terms and conditions of their account.

Accidental or on purpose — it doesn’t matter. Either way, a locked-in account is stressful when financial emergencies happen. Here’s everything you need to know if you’ve made this mistake.

Why Do Some Savings Accounts Lock In Your Money?

Guaranteed Investment Certificates, Money Market Funds, and Government Bonds are all alternative options to the typical savings account. While each one is unique, they all share one feature: they lock away your savings for a specific term.

How long is this term? You may have to wait six months to five years before you reach your maturity date. The maturity date marks the end of your agreement when you can access your cash again. If you try to withdraw this money before this time, you will have to pay a charge for breaking your agreement.

Why would someone risk this charge? Savers primarily choose to put their money in these accounts because they tend to offer higher annual percentage yields (APYs) than a basic savings account. They are also generally safer and more secure than high-interest investment options that can lose value depending on the market, like mutual funds and stocks.

Some savers purposefully put their emergency fund in a GIC, believing their maturity date will arrive before their next emergency. Others might overlook the fine print when getting a GIC, or perhaps an inexperienced financial advisor doesn’t explain a GIC’s term properly.

How Can You Handle Your Next Emergency?

Let’s say you still have eight months left before your maturity date. But then your water heater springs a leak, your taillight needs replacing, and your cat needs urgent surgery. Don’t panic — you still have options.

Depending on the type of account, you might be able to cash in your investment before its maturity. These early withdrawals will be subject to a fee, which may vary depending on your financial institution and your exact agreement. You may also lose interest on your savings.

Unfortunately, some non-redeemable GICs will not release your cash early. If you can’t break your agreement, or the cost is too much, consider an emergency line of credit.

An emergency line of credit is a convenient backup when you can’t access your savings easily. If approved, you can draw against your line of credit without any costs or penalties. You’ll only have to pay interest and finance charges on your purchases, paying these back on top of the principal balance.

An emergency line of credit typically comes with a monthly billing statement and a minimum payment. This means you have until this billing statement to pay off what you owe. If you can’t pay all of it at once, you may rely on your minimum payment to avoid late fines.

Bottom Line:

You’ll have to crunch the numbers to see if it’s worth eating the early withdrawal penalties or paying the finance charges on an emergency line of credit. But the good news is that you have ways to handle an emergency, even when you’ve locked in your savings.

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