Where Should You Save Your Emergency Fund?

Where Should You Save Your Emergency Fund?

An emergency fund is an account for funds set aside in case of the event of a personal financial dilemma, such as the loss of a job, a debilitating illness or a major repair to your home.

Anything that can possibly go wrong, does ~ Murphy’s law.

No matter where you are with your personal finances, it is always a good idea to have a rainy day fund. Most of the personal finance gurus recommend saving at least 3-6 months of living expenses as your emergency fund. There can be a lot of factors that influence whether you lean towards a 3 month or towards a 6 months of living expenses emergency fund.

How Much Do You Need In Emergency Fund Savings?

Some of the factors that would help you decide how much should you have in your emergency fund: 

  1. If you lost your job, how soon can you find a similar paying job?
  2. Are you the sole bread winner of your house hold or do you have a backup income to lean on?
  3. Do you have any other assets outside of retirement accounts which can be accessed without penalties if need be? 
Photo by Sharon McCutcheon on Unsplash

If you answer to most of these questions is no, I would highly recommend you to have an emergency fund of 6 moths. If you answered at least yes to 2 of them I would dial it back down to 3 months. 

Once you know how much money you need to save for your rainy day fund, you need to evaluate where you can park that money.

Well, before we dive deep into some of the options, it’s very important to remember that an emergency fund is not an investment! So what we are looking at here is not to maximize our gains but to preserve the capital so that it protects us from any emergencies. 

Just like how you should never buy an insurance product as an investment, you shouldn’t look at your emergency fund to maximize gains. If it’s a side effect of the choice, it’s great but it should never be your primary objective.

Related:  5 Questions To Help You Discover Your True Financial North

Where Should You Save Your Emergency Fund?

Let us now explore some of the criteria to consider when deciding the right place to park your emergency fund. 

1. Savings account with a local  credit union

AccessibilityWithdrawal
Limits
YieldRecommendations
1. ATM
2. Online

Up to 6 
withdrawals 
per moth
2% APY
1.2% APY
Alliant Credit Union
First Tech Credit Union

2. Savings account with a big  brick and mortar bank


Accessibility

Withdrawal
Limits

Yield

Recommendations
1. ATM
2. Online

Up to 6 
withdrawals 
per moth
0.10% APY
0.15% APY
J P Morgan Chase
Wells Fargo

3. High Yield Online Savings Account (HYOSA)


Accessibility

Withdrawal
Limits

Yield

Recommendations
1. Online
2. ATM
(Synchrony bank)
Up to 6
withdrawals
per moth
2.35% APY
2.15% APY
2.15% APY

pnc bank
Synchrony Bank
Marcus (Goldman Sachs)

4. Money Market Account


Accessibility

Withdrawal 
Limits

Yield

Recommendations
1. ATM
2. Online
3. Checks
Up to 6
withdrawals 
per moth

2.25% APY
2.15% APY
2.15% APY

Sallie Mae Bank 
TIAA Bank
CIT Bank

5. Using Robo Advisory Firm

You can also explore opening an account with a Robo-Advisory firm like Betterment. I personally don’t find it a very good choice since they typically recommend a portfolio based on your risk appetite involving a bunch of stocks and bonds ETFs. Since these asset classes are bound to be volatile, I wouldn’t recommend this choice.

In summary, the primary goal of an emergency fund is liquidity, accessibility and then if possible some yields, I would go with the following. 

  • 60-70% of emergency fund – Savings account with a credit union
  • 30-40% of emergency fund – High yield online savings account

I feel the above mix gives you a good tier mechanism to choose a middle ground without going with extremes. 

3 thoughts on “Where Should You Save Your Emergency Fund?”

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