Survey: Most Americans fail the emergency-fund test
By Laura Bruce • Bankrate.com

Fewer than four of 10 American adults have an emergency fund to fall back on in the event of some financial disaster, according to a nationwide Bankrate.com poll. And those that do have an emergency fund aren't earning all that they could.

Consequently, a costly emergency, such as an unexpected unemployment or major medical expenses, could send unprepared adults into a financial tailspin that could lead to years of debt or even bankruptcy.

"When it comes to the general public, most people are absolutely not safe in a financial emergency," warns Certified Financial Planner Benjamin Tobias, president of Tobias Financial Advisors in Plantation, Fla. "Too many people are living paycheck to paycheck, or they're people who don't manage their money well. There are a lot of people who just don't know any better."

Financial experts say that everyone should have an emergency fund consisting of at least three months of living expenses in a liquid account, such as a savings account or money market mutual fund. In most cases, the experts say, six months of expenses would be ideal.

A little is better than none
The Bankrate poll indicated that while 70 percent of the respondents have at least some money in a savings account, certificate of deposit, money market account or a money market mutual fund, only 39 percent have enough to cover three months of living expenses.

Another troubling finding is that many of the 39 percent who have put aside three months' living expenses aren't getting much of a return on their cash. Only 44 percent say the money is in an account earning at least 3 percent. Nearly 30 percent have the money in accounts earning less than 3 percent, and almost 7 percent aren't earning any interest at all. This is discouraging when many online and traditional banks are offering high-yield savings accounts of 4 percent or better.

That finding doesn't surprise Tobias.

"Many people when they first come to us have large sums of cash sitting in no-yield checking accounts or bank money markets with low returns. They're used to having a checking account at a large commercial bank, and they don't pay any attention."

On a more positive note, those who have savings are saving a lot. The average amount in the accounts is $21,938. However, 42 percent of respondents did not answer the question about how much they had saved.

Earn more money
The poll shows the importance of not only establishing an emergency fund, but making sure it's earning all it can.

Historically, the average annual inflation is about 3 percent, and 37 percent of the poll's recipients earn 3 percent or less on their emergency funds, which has the same effect as losing principal: They're losing buying power. By shopping around, people don't have to leave money on the table.

The current national average for a money market account yields a measly 0.79 percent average, according to Bankrate's weekly survey of large lenders. But high-yielding MMAs now earn as much as 5 percent.

The difference is dramatic: Someone with the average size emergency fund -- $21,938 -- who parks it in the average money market account earns just $173 in a year. The high-yielding fund would earn $1,104, a difference of almost $1,000 per year. Whether there's an emergency or not, that would make a big difference.