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Where to Keep Your Emergency Fund

Image courtesy of anankkml at

Image courtesy of anankkml at

Ask any qualified financial planner and they’ll generally tell you to have at least 3 to 6 months of living expenses set aside in order to fund a “rainy day” in the future. This emergency fund is there to help you pay bills such as your mortgage, utilities, and groceries in the event you lose your job, become disabled, or to pay for an unexpected emergency (such as a car or home repair). Some folks may need greater than 6 months expenses if they lose a job that may be hard to find again or a single income family that relies on one individual’s income.

The question then becomes where to invest that emergency fund. Generally, the fund should be liquid. That is, the individual should have easy access to the money without having to wait days, weeks, or months for to get access to cash. For example, one of the best places to put your emergency fund is in a checking or savings account. Many banks and credit unions offer separate account for various savings reasons. It’s also FDIC insured up to $250,000 and up to $500,000 in a joint account.

Don’t expect to earn a lot of interest on this money. If it’s deposited in a general savings or checking account expect anywhere from .10% to .25% on that money. The point is not to have that money earn high rates of return which generally means more exposure to risk – which is what the emergency fund should not be exposed to at all.

For example, if an individual held their emergency fund in an aggressive stock mutual fund (not recommended) the individual may experience better returns on their money, but they are also exposed to the risk of the fund declining in value during a market crash or correction.

If this was to happen and the individual needs access to the funds (say, for living expenses since they were laid off in the down economy) they may only have access to a fraction of the money they originally used to fund the account. This only adds to their stress.

Since it’s for emergencies only and not for your retirement, consider putting your emergency fund in safe, liquid, FDIC insured accounts at your bank or credit union.


  1. Anne says:

    Another way to “have emergency funds”; esp. for younger people or children is: “a prepaid Visa cash gift card:; (which can be used almost anywhere cash can: (gas; food; lodging); are reloadable and if lost; card is refunded to the purchaser: “My Dad used to send”Gift Cards around the holidays”; those cards are appreciated!!

  2. Anne says:

    Thank you for the information: “a wicked feeling not to have accessible funds”; so I agree a checking’s account is a great place to keep emergency funds; I have a “Dual Checking and Savings Account”; I pay only $1 a month for both accounts; I get a “Bank Debit Card” included;: for another $1 a month I get a “Master Card Debit Card” altho’ I cannot borrow on the MasterCard: I can use the card anywhere!

  3. Lisa says:

    Hi Jim. Another great post and public service. But I’m curious why you don’t mention the Money Market Savings account (as distinct from a money market fund) where consumers can currently earn as much as 99-100 basis points, but still enjoy FDIC coverage and access to their money. Yes, you’re limited to six transactions per month but, in an emergency, it takes just one transaction to transfer funds to a checking account.

    1. sraskie says:

      Thanks, Lisa. Good point as well on the MMSA. Thanks!

  4. John Lacek says:

    A different perspective/view on Emergency Funds. When I was in the accumulation stage (pre-Retirement) I had an Emergency Fund that covered 1-year’s worth of expenses and those funds were in an On-Line Savings Account. Since I retired about 6 years ago, my definition of Emergency Funds or should I say the duration of time I am looking at for this Emergency Fund is now for 3-years. So maybe it is no longer considered your tradition Emergency Fund, meaning there is another name for it, or I am just looking at it a little differently, but the bottom line is that these funds are easy to access and they are in a reasonably safe investment vehicle that will cover my expenses for a 3-year period in case of a “raining day” which I define as a major downturn in the Market, one in which I do not want to withdraw monies from my more aggressive portion of my portfolio.

    So, the make-up of this 3-year Emergency Fund is as such: My current year monies are in an On-Line Savings account, currently earning around 1.0%. My next year funds are in Vanguard’s Target Retirement Income Fund, an all-in-one fund that has a 30%Equity and 70% Bond split. My 3rd year funds are in 5-Year CDs currently averaging around 2.6%. I consider these funds my 3rd year funds because, if I had to go to them, I would have to pay a small penalty to withdraw before their maturity date. My dilemma with these CDs is that they will start maturing in Jan 2016 and current rates don’t look attractive to me so I may end up putting all these funds into the Target Retirement Income Fund.

    1. sraskie says:

      Thanks John! Great points and thanks for sharing!

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