Where To Keep An Emergency Fund

Our last SquareOne blog discussed the minimum amounts of emergency funds to be saved based on your unique situation. We also established some guidelines for how much cash you should set aside for unexpected life events that can significantly impact your financial well-being.

This week, we’ll discuss the types of accounts you can use to hold your emergency fund cash and the pros and cons of each.  Importantly, your emergency fund should be held in a separate but easily accessible account that is liquid. Here are a few examples:

  • A checking or savings account at a local bank
    • Pros: Easy access to move funds instantly to your service checking account if your emergency fund is located at the same bank
    • Cons: Lower interest rates than other options, fees, and potential minimum balance requirements
  • A money market account
    • Pros: Easy access to funds, especially if held at the same banking institution as your checking account, and can sometimes earn a higher interest rate than a traditional savings account
    • Cons: Limited number of transfers per month, fees, and minimum balance requirements
  • An online high-yield savings account (HYSA)
    • Pros: Can pay a higher interest rate than a traditional savings account, many options with no fees or minimum balance requirements, and easy access to move funds in and out of the account online
    • Cons: Limited number of transfers per month, movement of funds could take a business day or two, and not typically available from your current banking relationship

Whether you decide to keep your emergency fund in one of the accounts mentioned above at your local bank or use an online high-yield savings account will depend on your personal preferences.  For some, creating a physical and psychological barrier to their emergency fund is essential to helping them remain purposeful about their savings and not consider those dollars available for spending.

You’ll also want to be mindful of the interest rates you will earn and consider the cost of leaving your emergency fund in a lower rate savings account versus a higher paying money market or HYSA. The national average interest rate for savings accounts in the US as of February 24th, 2021, was 0.07%. By shopping around a bit and being comfortable holding your emergency cash at a different institution, you can earn many times more than the national average through a money market or online high-yield savings account. Bankrate provides a good breakdown of the average interest rates on savings accounts.

Remember, it is important to be conscious of any fees charged, minimum balance requirements, or limitations on transfers to and from accounts when making these decisions. An excellent resource for finding an online HYSA or money market account is Nerd Wallet.

We’ll discuss tips for building your emergency fund in our next blog, even when you’re living paycheck to paycheck.

SquareOne: A Financial Foundations Blog is a personal finance series from The Welch Group created to help provide readers with the foundational knowledge to be purposeful with money by identifying key financial concepts to help them control their financial future. Foundation topics include personal savings strategies, debt consolidation and reduction, life planning, retirement planning methods, and beginner essentials of investing and taxes.

certified financial planner Callie Jowers wears maroon and gold zipper dress with hands clasped together, posing for professional photo in an office

Callie Jowers, CFP ® is an Advisor at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Callie is a graduate of the University of Alabama, is currently pursuing a Master of Accounting at the University of Alabama at Birmingham, and is a Certified Financial PlannerTM.




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