4 places to keep your emergency fund

By Melanie Lockert

One of the most essential things you need as an adult is an emergency fund. 

Typically, an emergency fund is three to six months of expenses and can help you deal with whatever unexpected expenses come your way. Let’s face it, emergencies come in all shapes and sizes and appear at any time. An emergency fund can also be the difference between a crisis and an annoying, expensive day. 

But where you keep your emergency fund is almost as important as having one. Here are four places you can stash your emergency savings. 

1. A high-yield savings account

When it comes to saving money, you don’t just want any old savings account. Why? Because it’s important to maximize your deposits and earn interest on the money you save. 

So, instead of opting for a general savings account, try saving with a high-yield savings account. 

A high-yield savings account has higher interest rates than a regular savings account. And, many of these accounts are through online financial institutions. According to the financial website NerdWallet, “The best online savings accounts have high-interest savings rates while providing a safe place to keep your money. Because online banks don’t have the expense of maintaining branches, they can offer high-interest savings paying upward of 2% APY — many times higher than the national average of 0.09%. That may not sound like much of a difference, but it adds up.”

Here is a chart from QZ with high-yield savings accounts rates as of early 2019. 

Source: QZ 

The great thing about a high-yield savings account – aside from the high interest rate – is the power of compound interest. Compound interest is basically the idea of earning interest on top of interest. So, instead of just earning interest on your original deposit, you earn interest that is compounded from your initial deposit as well as the interest earned from it.  If you consistently save using a high-yield savings account, your deposits will grow faster. That’s why a high-yield savings account is a great tool to save for an emergency fund. 

When looking for a high-yield savings account, consider the APY, any minimum deposits, and accessibility. 

2. Certificates of deposit (CDs)

Another option to save more money is via certificates of deposit (CDs). Certificates of deposit are like your saving account’s cooler cousin, and your investing account’s more conservative sibling. 

According to Investor.gov, “A certificate of deposit (CD) is a savings account that holds a fixed amount of money for a fixed period of time, such as six months, one year, or five years, and in exchange, the issuing bank pays interest. When you cash in or redeem your CD, you receive the money you originally invested plus any interest.”

A certificate of deposit can have a higher APY than a regular savings account. But in exchange for the higher APY, your money is in a holding pattern until the maturity date. As noted above, CDs are held for a specific amount of time. Once you reach the maturity date, you can access your money with all of the interest. 

It’s important to be aware that if you try to access your money earlier than the maturity date, you can be hit with an early withdrawal penalty. 

All told, CDs are a good option because they are considered a safe savings vehicle. 

3. Money market accounts

Money market accounts (MMA) are another type of savings vehicle for your emergency fund. Saving with an MMA can get you a higher interest rate for your emergency fund, and this way you can earn more on your deposits. You can get a money market account from a bank or credit union. 

The main pro with a money market account is the higher than average APY, but the fees could bite into those earnings if you’re not careful. For example, some big banks will require a minimum deposit on money market accounts and hit you with fees if you don’t keep a certain balance. 

According to Investopedia, “In early 2019, their average interest rate was 0.15%, while the average savings account paid 0.09%, according to Bankrate. The highest money market account rate was 2.01%, while the highest savings account rate was 1.90%.”

One major difference between money market accounts and other savings accounts is that with MMAs you typically have check writing privileges and can use a debit card.

4. Treasury bills

There’s one savings vehicle you may not have considered or even heard of: treasury bills. Treasury bills are a type of security that is a debt obligation of the U.S. government. Treasury bills are issued and typically mature in a year or less. 

In many cases, treasury bills are in denominations of $100. Essentially, you are providing a short-term loan to the government and in exchange, you’ll earn some interest. You can access your money once the deposit matures. 

The maturity date can vary and can last up to a year or be as short as a few days or a few weeks. If you go with a longer maturity date, you’ll typically earn more.

You can learn more and get started at TreasuryDirect.gov

Bottom Line

Saving for an emergency is crucial to navigating your adult life. And, if you’re wondering where to put your emergency fund, you can consider these four savings vehicles. 

To find the best emergency savings account for you, be sure to do your research and check out the APY, minimum deposit, maturity date, and accessibility. 

Regardless of where you park your savings, having an emergency fund can help you rest easier at night knowing you have cash set aside to deal with whatever might come your way. 

Melanie Lockert is the founder of the blog and author of the book, Dear Debt. Her work has appeared on Business Insider, Time, Huffington Post and more. She is also the co-founder of the Lola Retreat, which helps bold women face their fears, own their dreams and figure out a plan to be in control of their finances.

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