Where should I save money for emergencies?
Thank you for the question. It’s great that you’re saving for emergencies to begin with. If anyone reading this doesn’t have some cash on hand for emergencies, make sure you do the same. You can use my advice below as a guide for how and where to save this money.
An emergency fund, or rainy day fund, should be in a liquid account where you can access the money immediately. The primary goal of your emergency savings is stability and liquidity, not investment return. That’s the big difference between savings and investing. Some of the best places for emergency savings are;
Bank savings accounts
High yield savings accounts (available through banks or credit unions)
Money market accounts
All three are liquid, safe, and insured up to $250,000 per account or $500,000 for joint accounts.
Once you’ve chosen one of the three options above, you want to choose an account that will earn a good rate of interest. Remember, interest is secondary to stability and liquidity when it comes to an emergency fund, but as long as you’ve chosen an account with the other two, you should try to get a good interest rate. I highly recommend opening an account with CIT bank. They have great options and interest rates, and have been in business for a long time.
Notes:
Bank CDs (certificates of deposit) are not good options for emergency savings because there are penalties for early withdrawal - i.e. they are not as liquid as the options above.
Money market accounts from a bank or credit union differ from money market mutual funds through a mutual fund company. A money market mutual fund is not FDIC insured.
