The best places to keep your emergency fund

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In addition to saving for the days you’re dreaming about — taking a vacation or making a down payment on a house, for example — you need to save for the days you hope never arrive. By working toward setting aside six months’ worth of expenses in an emergency fund, you’ll be prepared when a worst-case scenario becomes a reality. Having an emergency fund is just one part of a successful personal finance strategy; you need to find the right home for it, too.

The best places to put your emergency savings

You need to be able to sleep at night with the assurance that your emergency fund has no chance of disappearing, so safety is a key ingredient. Accessibility is essential, too. Because you may need the money in your emergency stash at a moment’s notice, you’ll want to be able to withdraw funds without any potential for delay or penalties. Here are a few ideal options.

Online savings account or money market deposit account

These accounts may have different names, but they’re both well-suited for your emergency fund. In addition to insurance coverage from the Federal Deposit Insurance Corp. or National Credit Union Association, these accounts offer the most competitive interest rates on savings products. In normal, non-pandemic times, these also come with a guardrail that will prevent you from thinking about spending from them: a limit of six withdrawals per month.

One thing to note: Transfers from an online savings account can take 1-2 days, while transfers from a savings account at your primary bank can happen immediately. You may decide to keep a small amount of money at your primary bank for immediate access and the bulk of your emergency savings in the online account.

You can compare the best savings accounts and money market accounts on Bankrate.

Bank or credit union savings account

You can also consider opening another savings account at your primary banking institution. This simplifies your financial life by keeping everything under one roof while distinguishing your emergency fund from the one you use for your day-to-day finances. And again, transfers from your primary bank can happen immediately.

However, you may sacrifice the potential for earning interest. Institutions with large networks of brick-and-mortar branches offer a pittance of yield compared with low-overhead, online-only banks.

Money market mutual fund

These funds present another relatively safe place for emergency funds. Although they don’t come with the guarantee of insurance protection, they are low-risk and easily accessible parking spots for cash. Any interest earnings, though, aren’t much to write home about — a key difference between these and money market accounts.

The worst places to put your emergency savings

Knowing where not to keep your money is an equally important lesson. These places can serve a valuable purpose for your other financial needs, but they aren’t designed for emergency safekeeping.

Checking account

Lumping your emergency savings in with the checking account you use on a regular basis presents the challenge of being too accessible. It’s better to completely separate these two from each other. Otherwise, you will run the risk of dipping into your emergency stash with the promise that you’ll replenish it when your next paycheck arrives (and the potential to break that promise). The other major downside is the lack of earning potential. Standard checking accounts offer nominal yields, and in some cases, they don’t offer any interest earnings at all.

Certificate of deposit

A traditional CD comes with a penalty for any early withdrawal of the funds. So, if you park your emergency savings in a one-year CD and wind up needing the money in four months, you’ll forfeit interest and, potentially, even have to hand over extra cash to access it. There are alternative no-penalty CDs, but some of these still carry access limitations.

The stock market

With an average of a 10 percent annual return, the stock market is great for the long game. However, when you have the potential for playing a very short game — needing your money next week, for example — avoid the market at all costs. If you want evidence of the high-risk gamble that stocks present for your savings, take a look back at the four-day period in March 2020 when the Dow Jones Industrial Average dropped by 26 percent.

Savings bonds

Savings bonds might work for a portion of your emergency fund. However, there are some significant drawbacks to using them for your safety cushion. After purchasing a savings bond, you cannot cash it in for a full year. And while these do pay interest, you would have to forfeit three months of those earnings if you cash in the bond within five years of purchase.

At home

If you’re considering keeping your emergency fund under a mattress or in a safe at home, it’s time to rethink your strategy. In the event of an at-home emergency such as a fire or theft, it creates another dire emergency: Your cash will be gone — without any way of getting it back.

Written by
Greg McBride, CFA
Chief financial analyst
Greg McBride, CFA, is Senior Vice President, Chief Financial Analyst, for Bankrate.com. He leads a team responsible for researching financial products, providing analysis, and advice on personal finance to a vast consumer audience.
Edited by
Senior editorial director
Reviewed by
Chloe Moore, CFP®
Founder of Financial Staples