Where to Keep Your Emergency Fund

An emergency fund has one job: to be there, in full, on the day something goes wrong. That makes the question of where to keep it less about earning the most interest and more about three simple tests.

The three tests

Safety. The money should not lose value when markets fall. Look for accounts covered by deposit insurance, and check the coverage limits that apply in your country.

Access. You should be able to reach the money within a day or two, without selling anything or paying a penalty.

A little friction. If the fund sits in your everyday checking account, it will quietly get spent. A separate account makes you pause before dipping into it.

Good options

A high-yield savings account at an online bank or credit union usually passes all three tests, and typically pays more than a standard savings account. A money market account can work similarly, sometimes with check-writing features. Compare fees and minimum balances before choosing.

Options to be careful with

Investments such as stocks or funds can fall in value just when you need the cash. Certificates of deposit pay a known rate but may charge a penalty for early withdrawal, so they suit only part of a larger fund.

How much to keep

Many planners suggest starting with a small goal, such as one month of essential expenses, then building toward three to six months. Your own number depends on how stable your income is and how many people rely on it. If you are still working out those monthly expenses, our walkthrough on building a zero-based budget is a good place to start.