Where to keep your emergency fund

January 9, 2007

In the last few weeks, I’ve talked about why you should have an emergency fund, and how much you should have. 

Today I want to talk about where to keep your emergency fund.

If you’ve followed the guidelines (3 to 6 months of living expenses, or $1,000 if you’re working on a ‘baby’ emergency fund), then you may have a substantial amount of cash lying around.

You don’t want this money sitting in a checking account earning no interest, or a savings account that earns less than 1% interest.

On the other hand, you don’t want to put your emergency fund at risk.  So where to put that cash?  Here are some suggestions:

1.  Look for a money market account at a bank or credit union in your area.  A great place to start your research is Bankrate.com, where you can search by your location.  Your local paper might also list money market accounts in the money or finance section.

2.  If you’re comfortable with online banking, check out internet banks such as ING, HSBC, or Emigrant.  Online banks may offer a higher interest rate than local banks because they have lower overhead.

3.  CDs – although a good portion of your emergency fund should be in liquid accounts that are easy to access, you might want to keep part of your emergency fund in CDs to earn a higher interest rate.  Shop Bankrate.com or your local banks for the best rates.

4.  Money market mutual funds – if you already have investments with a mutual fund company or brokerage company, you might consider using a money market mutual fund for your emergency fund.  Rates are competitive and this option may be more convenient for you if you already have a brokerage account. 

5.  Short-term and ultra short-term bond funds – these are bond funds which fluctuate based on what the bond market is doing, so the value of your bond fund can go down.  However, there is potential for a greater return than a money market or CD, if you don’t mind the additional risk.

Tags: , ,


Leave a Reply


Beacon Financial Advisors, LLC, is a fee-only financial planning and Registered Investment Advisory firm headquartered in Lee’s Summit, Missouri and serving the greater Kansas City area.

The firm offers comprehensive financial planning services. Beacon advisors work solely for their clients. Click here to learn more about our services.

About Us

Kristine McKinley, CFP®, CPA, is the founding principal of Beacon Financial Advisors, LLC, an independent, fee-only financial planning firm located in Lee’s Summit, Missouri and serving the greater Kansas City area.

Kristine focuses on providing fee-only financial planning, investment advice, and tax preparation to individuals and families from all income levels.  About Us

In the News

Investment News – Kristine McKinley discusses the 0% Social Security COLA (for 2016) in No Social Security cost-of-living adjustment in 2016.

Kiplinger Magazine/NAPFA – Kristine McKinley answered reader’s tax questions during the 2013 Jump Start Your Retirement Plan Days sponsored by Kiplinger magazine and the NAPFA Consumer Education Foundation.