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Where to Keep Your Emergency Fund

Where to Keep Your Emergency Fund

By Kia Jackson • July 15, 2020

Emergencies can come in many forms — a sudden job loss, major household repair or even, as we’ve all learned, a global health crisis. And having money earmarked only for emergencies is the best way to prepare yourself for any unexpected surprises that come your way.

Once you’ve established a clear plan for building your emergency fund, it’s time to start looking into options for where to keep it. They key is to make sure your money is safe, can earn interest and is accessible — but not so accessible that you end up spending it prematurely.

Here are a few suggestions for where to keep your emergency fund:

• Traditional bank or credit union account

Accessibility Level: Highest

If you already have a savings or checking account at a bank or credit union, it’s easy to create an additional account at the same institution and designate it as your emergency fund. Having an emergency fund at the same bank as your everyday account makes it easy to move money from one account to another, which can work both for and against you. When considering this option think about whether having regular contact with the account would make it too tempting to spend it on nonemergencies.

• High-Yield Savings Account

Accessibility Level: Moderate

With a high-yield bank account, your money earns more interest over time than it would in a traditional bank savings account. Many high-yield accounts earn between 1% and 2.30%, while savings accounts at traditional banks accrue interest at a rate of 0.01% to 0.03% per year.1

High-yield accounts are most commonly found at online banks, with many not requiring a minimum balance or monthly fees. However, if the online bank you choose does not have an ATM or physical branch nearby, it may be harder to access your money at a moment’s notice. Should you need your money same-day, the process of transferring your emergency funds to your traditional bank may take a full business day or more.

• Money Market Account

Accessibility Level: Highest

While this type of account also earns a higher annual percentage yield (APY) than a traditional savings account, it does typically require a larger minimum deposit to open an account. Most money market accounts require a minimum balance of at least $2,500, and if your balance drops below that amount, you may be subject to fees. But if you plan to open your emergency fund with a deposit this size or larger, a money market account could be a nice option to consider due to its higher returns.

If you need to access your emergency fund in a pinch, a money market account typically comes with a debit card and check-writing privileges, with no penalty fees for withdrawing, just like a traditional checking or savings account.

• Certificate of Deposit (CD)

Accessibility Level: Moderate

A CD is like a savings account, but for a fixed length of time — anywhere from three months to 10 years.2 But unlike a traditional or high-yield savings account, withdrawing your money from a CD before the term expires results in an early withdrawal penalty.

If you’re leaning toward a CD to keep your emergency fund, it may be wise to create what’s called a CD Ladder — opening multiple CDs with varying maturity dates. That way, if you face a financial emergency, you can access at least some of your emergency fund without incurring a penalty.

• Roth Individual Retirement Account (IRA)

Accessibility Level: Low

Although it’s designed as a retirement fund, a Roth IRA could be worth considering for your emergency fund if you’re hoping to earn much higher returns than you would with other savings accounts.

But as with most investment vehicles, your Roth IRA could lose value. And if you need to access your money quickly, the penalties associated with withdrawing could be costly. If you like the peace of mind of knowing you could access your emergency fund at a moment’s notice, a Roth IRA may not be for you.

Weigh the pros & cons of each option

Choosing the best place for you to stash away emergency cash is an important decision, and one that varies from person to person. One option may offer greater returns but with higher possible fees, while another offers only modest returns but gives you a greater sense of security. Be sure to examine all options carefully before making your choice. After all, this is money that you’re working hard to set aside, and you want to save it in a place that offers growth, security and accessibility.

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The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal or any other advice specific to you the user or anyone else. The companies and individuals (other than OneMain Financial’s sponsored partners) referred to in this message are not sponsors of, do not endorse, and are not otherwise affiliated with OneMain Financial.