Home > Personal Finance > Where Should You Keep Your Emergency Fund?

Comments 2 Comments

We have all heard and (hopefully) heeded the advice to keep between three and six months’ worth of expenses aside as an emergency fund. Even if you feel like you have a handle on budgeting for your day-to-day expenses, what happens when the unpredictable hits with the potential to set your finances back? This stash is not meant for buying a home or going on a trip, it is for real emergencies. It’s a good idea to make growing an emergency fund a priority and where we keep this money can make a big difference. It’s important for the money to be accessible, but it can also be earning interest while waiting to be tapped. If you are building up your emergency fund and looking for a better place to keep it than under the mattress, check out these options of places to park your emergency fund.

Online Savings Account

Traditional savings accounts can be great for those of us who like to play it safe, but interest rates will not do much for you. Online banks do tend to offer slightly higher rates and lower fees so you could see a little more growth. Furthermore, it’s important to keep your emergency savings fund away from your normal checking account so you have some separation between your spending cash, cash for other savings goals and your emergency cash.

Money Market Account

This is a common place for emergency funds for those looking to get better interest rates. They are similar to regular savings accounts in terms of FDIC insurance and limits on the number of withdrawals you can make each month, but typically require a higher minimum deposit and they sometimes carry higher fees. It’s a good idea to read the fine print before choosing which account to keep your emergency fund in.

Penalty-Free CD

Since you need the money to be accessible, regular certificates of deposit with established time limits are not always going to work, but there are some no-penalty options. These typically have lower rates than traditional CDs, but offer higher yields than traditional savings accounts. You just need to look for banks that offer these and, again, read the fine print carefully.

Savings Bond

These are also typically seen as a long-term investment, but I-bonds can offer more flexibility. You can own some for as little as one year and do not need much capital to get started. The interest rate is better than other, more liquid vehicles but the interest is taxable and if you need to cash them in before five years, you will forfeit some of the interest you have earned.

Retirement Fund

Most experts will tell you to avoid touching your retirement savings until actual retirement. This is generally good advice as you want to make sure you have enough money left to fund your golden years. But if you have to tap your retirement funds for emergencies, it’s good to understand the different tax implications and penalty fees associated with each type of account. 401(k) accounts generally (there are exceptions like the Roth 401(k) option) hold funds that you contributed before paying taxes. So if you take out money before you are 59½ (besides for a few particular exceptions) you will have to pay an early withdrawal penalty and taxes. Since you contribute to a Roth IRA account with after-tax money, you may still pay a penalty but can withdraw the original contributions (not the interest earned) without paying additional taxes.

Where you keep your emergency fund is up to you, and you may even choose to use a combination of locations to ensure your stash is safe, liquid and reliable. Do your research before carefully considering the best location for your money — there is no one right answer, just as long as you have a place for it.

More Money-Saving Reads:

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

  • Mac

    If I really stick to a “tight” budget like eating Ramen & Peanut Butter sandwiches I can stretch my 6mo emergency fund out to 8mo. I keep it in cash in a fireproof/waterproof safe at my home, with interest rates where they are these days I think cash at home is the best thing since i have easy access to it.

  • Mary Beth Repine

    I have always kept between $300 and $600 in my car for emergency purposes. In the event of an evacuation I will not need to wait in line for an ATM or be stuck due to power outages. I try to maintain 6 months in a savings while planning ahead for retirement.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team