 Dear Dr. Don,
I have a savings account where I put my emergency
fund. It is currently making 1.7 percent interest. Is there
somewhere else that I can put my emergency fund with a higher
interest rate and still have the ability to use it if I need
it?
-- Antonio Accumulate
 Dear Antonio,
Your frustration is a common one in investing an emergency
fund. The idea is to keep this money liquid and safe so it's
there when you need it. But if you never need it, you're giving
up a lot of potential return just to have this safety net
in place.
Most financial planners recommend that you have
three- to six-months' worth of living expenses invested in
an emergency fund, more if you're self-employed, work on commission
or have concerns about your employer or job. The number of
months' worth of expenses that you have on hand becomes the
maximum investment horizon for this money.
You can pick up some yield by looking at a high
yield money market account. Use Bankrate's Best
Rates feature as I did and found an FDIC money market
account with an annual percentage yield of 2.50 percent.
Other strategies include investing in a liquid
CD or no-penalty CD, where you can tap the deposit without
paying a prepayment penalty; or a CD portfolio where you accept
the risk of an early withdrawal penalty if you have to liquidate
to meet a financial emergency. An FDIC-insured deposit provides
the safety component needed in an emergency fund and you accept
the risk of the early withdrawal penalty in exchange for the
higher yield on the investment if you don't need the funds.
-- Posted: June 28, 2004
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When
applying for credit cards with better terms, should I drop the old
cards so that I don't have too much available credit, or should I
keep them because of the age of the accounts? 
