Keep a savings account for emergencies

Dear Dr. Don,
I have a considerable amount of money in an online savings account, currently earning a yield of 1.09 percent. I don’t know what low-risk thing to do with it, so I just leave it there. My age is 69. Can you suggest an alternative? I have a small amount in a 403(b) and a small pension, along with Social Security. I am still employed.
— Diane Deposit

Dear Diane,
Take a look at the big picture and not just this one account. How is the money in the 403(b) invested? What do you want to accomplish with the money currently held in the savings account?

A portion of it should probably stay liquid as an emergency fund. It’s typical for financial planners to recommend that you keep three to six months’ worth of living expenses in an emergency fund. The size of your emergency fund can be reduced by the guaranteed pension and Social Security income.

When you say that you’re looking for low-risk options, I think of insured deposits at a bank or U.S. Treasury securities. While Treasuries will fluctuate in price with changes in market interest rates, you’re guaranteed to receive the face value of the security when it matures. That covers the risk to principal, but you also need to consider the risk to purchasing power.

Over time, inflation can erode the purchasing power of your savings account. Treasury inflation-protected securities, or TIPS, offer a yield in excess of inflation as measured by the Consumer Price Index. But holding them in a taxable account is a nuisance as you have to pay income tax on the inflation adjustments as they’re credited to principal, and you don’t actually get the money until the security is sold or matures. They’re also a little pricey in today’s market, as a lot of investors are looking for this protection.

You can shop rates on certificates of deposit at, using its compare rates tool. At this writing, you can earn 2.65 percent annual percentage yield on a five-year CD. It doesn’t sound like much, but you’ve improved your yield by 143 percent.

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