Where to Keep Your Emergency Fund

While having an emergency fund is vital, putting this money in a low-yield checking account is not recommended. A certificate of deposit (CD) also may not be appropriate since your funds may be locked-up when the money is needed. For safe storage of your funds along with quick access and a better return, consider these alternatives:

• High-yield savings account. These financial products are offered by banks to attract new savers. These accounts have high liquidity and are covered by federal deposit insurance; although, interest earned is taxable. Most high-yield savings accounts are available through online banks. Also be aware of fees, minimum balances, or a required minimum length of investment.
• Money market fund. Usually offered by investment companies, these financial products are similar to high-yield savings accounts but do not have federal deposit insurance. However, they are protected by Securities Investor Protection Corporation (SIPC) insurance, usually covering amounts up to $1 million for investors.
• Treasury bills and bonds. These debt instruments of the U.S. Treasury have a maturity ranging from 90 days to 30 years. While considered very safe, an investor may lose money if sold before it matures.
• Ultra-short term bonds. For a higher yield with a bit more risk, consider ultra-short term bond exchange-traded funds (bond ETFs).  These funds invest in corporate bonds, which are not guaranteed.  However, it is possible to find funds that invest only in highly-rated bonds.

In each situation, be sure to consider the tax implications of earnings from these savings and investment products.

For additional information on emergency funds, click here.

Teaching Suggestions

• Have students create a list of unexpected situations that might require accessing money from a person’s emergency fund.
• Have students talk to others to determine where they keep money for emergencies.

Discussion Questions 

1. What factors might a person consider when selecting a savings instrument for storing money for emergencies?
2. Describe actions a person might take to have more funds available for an emergency fund?