4 Worst Places To Keep Your Emergency Fund

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Financial emergencies can happen to anyone at any time, so it’s important to always be prepared. Having an emergency fund to pay for unexpected expenses will prevent you from potentially ending up with credit card debt.

Keep reading as we discuss what an emergency fund is and some of the best and worst places to keep it.

What Is an Emergency Fund?

An emergency fund is money you set aside which is explicitly earmarked for emergencies. Maybe you find out you need to have your car repaired, or the air conditioner in your home replaced. These are sudden expenses you haven’t budgeted for.

Having an emergency fund in place allows you to have cash available to pay for these expenses without using credit cards, taking out personal loans, or having to sell your investments.

Worst Places To Keep Your Emergency Fund

Before we discuss the best place to keep your emergency fund, let’s discuss the places you want to avoid. 

Under Your Mattress

You’ve probably heard people talk about keeping money under their mattress. Unfortunately, this is something that actually happens. While you may feel like your home is a safe place to keep money, you’re giving up on any potential interest and losing money due to inflation. Plus, what happens if you have a fire or a theft at your home?

Checking Account

One key aspect of an emergency fund is that the money is accessible when needed, but not too accessible. The last thing you want to do is combine the money you use for everyday expenses with your emergency fund. Plus, most checking accounts don’t allow you to earn any interest. So, like keeping the money at home, you’ll lose to inflation. 

Stock Market

Most people invest in the stock market because of the potential returns over the long term. Unfortunately, you never know when you’ll need the money in your emergency fund, so you must think more in the short term. What happens if something happens next week or next month? If your funds are tied up in the stock market, you’ll be forced to sell, potentially at a loss or with a short-term capital gain. 

Certificate of Deposit (CDs)

CDs are another bad idea for your emergency fund. CDs usually assess penalties if you withdraw the funds before the term ends. For example, if you have an 18-month CD but need the cash after six months, you could lose the interest you’ve earned. 

Where To Keep Your Emergency Fund

Your emergency fund needs to be somewhere you can access it quickly, but it also needs to be separated from your other cash. While there are a few options available, one is better than the rest. 

High-Yield Savings Account

Online high-yield savings accounts are the best place to store your emergency fund. Not only are they federally insured through the Federal Deposit Insurance Corporation (FDIC), but they also have significantly higher interest rates than standard savings accounts. Because of their high APY, high-yield savings accounts will help your emergency fund outpace average inflation.

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