Introduction

Having an emergency fund is an important part of anyone’s financial plan.Where to keep emergency fund so that it is readily accessible when needed, while also earning a return? This article explores some of the best places to stash your emergency cash.

High-Yield Savings Accounts

One of the most popular options for where to keep emergency fund is a high-yield savings account. These function much like a normal savings account, but generally pay a higher interest rate. Some of the best high-yield online savings accounts pay over 2% APY as of January 2023 (Bankrate).

Benefits of high-yield savings accounts include:

• Higher interest rate than traditional savings accounts
• FDIC insured up to $250,000 per depositor, per bank
• Funds can be withdrawn easily at any time without penalty
• Can be set up to autodraft a portion of each paycheck

Some top high-yield savings accounts to consider for your where to keep emergency fund include:

Money Market Accounts

Money market accounts (MMAs) are another good option, providing higher interest rates than savings accounts, with easy access to your money. MMAs function similar to savings accounts but generally pay even higher yields.

Benefits of MMAs include:

• Higher yields than traditional or even high-yield savings
• FDIC insured
• Check-writing capabilities at many banks
• Easy withdrawals

Top MMAs for an emergency fund:

Short-Term CDs

For those willing to lock up funds for a certain period to earn a higher rate, short-term certificates of deposit (CDs) with terms of 3, 6, or 12 months can provide excellent returns while guaranteeing you can access funds within a year if urgently needed.

Benefits include:

• Guaranteed fixed returns that are generally higher than savings/MMA rates
• FDIC insured up to $250,000
• Can withdraw early, albeit with a small penalty (only 3 months interest on a 1-year CD for example)

Sample 12-month CD rates from leading banks:

While early withdrawal results in a small penalty, having access to the funds within a year can be preferable for some where to keep emergency fund compared to locking away for longer periods.

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Government I-Bonds

Another safe option that offers strong returns are I-Bonds or inflation-protected bonds issued by the US Treasury. These provide interest rates tied to inflation, adjusted twice per year.

Key advantages:

• Interest rates keep pace with inflation
• Guaranteed by US government
• No risk of losing principal
• Can cash out after 1 year

The fixed I-Bond rate is currently 0%, with the variable inflation rate at 6.89% for bonds issued from Nov 2022-April 2023. This protects your emergency fund savings from inflation erosion.

(Treasury Direct)

While technically you need to hold I-Bonds for 5 years to avoid a small penalty, even with the 3-month interest penalty you can still access funds after 1 year if urgently needed. This makes I-Bonds a smart and safe place to stash your where to keep emergency fund.

Choosing What’s Right For You

When deciding the best place to keep your emergency fund savings, consider these key factors:

• Interest rate – Compare rates across savings accounts, MMAs, CDs, I-Bonds, etc. Choose the highest yield for your savings goals
• Accessibility – Pick an account that allows easy access to withdrawals within a few days, in case you urgently need the funds
• FDIC insured – This protects against losses up to $250,000 per depositor, per bank
• Minimum deposits – Some accounts require a minimum deposit amount to open the account or earn interest

Most financial experts recommend keeping 3-6 months of living expenses in your emergency fund. Keep this savings in an accessible, high-yield account so you earn interest income on the balance while having peace of mind the funds are there if an unexpected emergency arises.

Frequently Asked Questions

How much should I save in my emergency fund?

Most experts recommend having 3-6 months of living expenses saved, to cover essential needs in the event of a job loss, medical crisis, or other financial emergency. This equals between $12,000-$24,000 for the average American household.

How long does it take to save for an emergency fund?

Saving up even $10,000 takes focused effort for many Americans. Here is one realistic plan to kickstart your where to keep emergency fund and achieve that vital financial cushion:

• Month 1: Begin setting aside $500/month automatically (or more if possible) from your paycheck into your designated emergency account
• Month 2: Trim your budget of any non-essential spending and reallocate this to savings
• Month 3: Make extra income each month from a side gig and direct this surplus straight to savings
• In 8-10 months: You could realistically have $8k-$10k saved with a dedicated plan

When should I use money from my emergency fund?

The purpose of saving 3-6 months cash in a safe, accessible account is so you have money to draw on specifically for true financial emergencies, like:

• Major medical expense not covered by insurance, avoiding debt
• Paying bills if you lose your job while you seek new employment
• Home or auto repairs when damage occurs unexpectedly
• Avoiding high interest costs if you have a temporary gap in income

The key is to limit use only to true emergencies that you cannot cover with other spare savings or budget adjustments – so you maintain a buffer going forward.

With smart saving strategies, consistent contributions, and keeping funds reserved just for true emergencies – your where to keep emergency fund could be your most valuable financial safety net. Start building your cash cushion today so you are prepared for whatever unexpected twists life throws your way.

References

• “High-Yield Savings Accounts.” Bankrate, January 20, 2023.
• “Series I Savings Bonds Rates & Terms.” TreasuryDirect, January 2023.