Emergency Fund location

[G. Thomas]

Where do you keep your emergency fund? 

I currently have mine in a bank separate from my active checking/"savings" account.  It goes w/o saying the interest is nill.  Does anyone have a strong reason as to put it in a specific bank with "higher" interest or in a different style of account altogether?

[ioseftavi]

Main concern with e-fund is safety of principal and accessibility.  The rate should be competitive but don't go nuts trying to get the absolute best or you'll inevitably end up playing musical chairs with your e-fund between various banks.  We use GE capital (currently 0.95%), but honestly, at current rates, it just. doesn't. matter.  The difference between not earning interest at all and earning the best rate in the nation is likely to be ~1%. 

[nereo]

We have a separate FDIC insured "savings account" attached to our checking account (TD Bank) - free and easy to set up.  We try not to keep more than ~2 months of expenses in there, knowing our job contracts are very stable and we have lots of squishy/springy debt & savings we could access if necessary in a real emergency.

I'd echo the previous poster who said you shouldn't go mad trying to find the best interest rate.  With only a few $k in there the difference between earning 0.5% and 3% (if such a thing exists these days!) is minimal.  Protection of principle is key.

[pzxc]

Just to add another viewpoint:  my job is stable and I can't remember the last time I had a true emergency, so my emergency fund is my Roth IRA. (Contributions can be withdrawn at any time without taxes or penalties -- the one caveat being that redepositing the money you take out counts as a new deposit, and there is an annual limit to contributions, so if an emergency does come up and I have to take money out, I may not be able to put it back)

[Blueskies123]

Living in Florida and experiencing 10 days without power, and seeing 9/11, I have my emergency fund in my local bank in  a separate account from my checking account.  I can ride my bike to it if necessary.  I also keep plenty of cash hidden in safe in the house.

[GGNoob]

Our emergency fund is our taxable investments. We have a conservative investment allocation at TD Ameritrade (for the commission free muni ETFs) and then the rest of our taxable at Vanguard. The Vanguard funds are a last resort since they are invested in our retirement allocation and meant to be a long term investment.


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[Dr. Doom]

If you own a house and have equity, read this MMM article about using your HELOC for this purpose.

If you don't own, consider using a money market account.  I used to keep mine in Vanguard, which provided some return, cost nothing, and provides a checkbook for outflows $250 and over.  (Although MM accounts have a pretty pathetic rate of return nowadays... you definitely might be able to do a little better with some research.)

[surfhb]

Just keep your EF in a simple savings account since its just a few months worth of emergency cash.... thats all.    Think of it as a small insurance policy you take out on yourself.

 Investing it wont bring you to FIRE that much sooner anyway

[pdxvandal]

Lots of credit unions offer rates between 1.5 and 3%, that is, if you can play "their game" of 10-12 debit card transactions and set up a single bill pay. Not that hard. Liquid and much better than a money-market account.

[waltworks]

Paypal Prepaid savings acct is FDIC insured and pays 5%. Downsides are:
-Limit is $5k (0.7% on balance beyond $5k)
-$4.95/mo account maintenance fee

So not very useful if you want to put just a small amount of money in, but great if you're dumb like me and like to have ~$5k totally liquid in savings that doesn't get touched, since you make something like 3.7% after the fees.

-W

[chuckaluck]

Started a high-yield eBank savings account about a year ago (via American Express, about .8 to .85% yield).  I have this linked to our household checking account. I can transfer any amount needed to the checking account (and visa versa) instantly with a click.  I use this account not only for an emergency fund but also as a means to slowly build up cash for anticipated large bills that will be coming over the next year or so (son's tuition, renovations, vacations,etc).  All dividends, capital gains, and some part-time work money go into this account as needed to keep it at an always changing appropriate level.  I like the idea of knowing that I don't have to liquidate mutual funds shares during a stock market pullback to raise cash.   I know I could earn more money by putting all the cash into mutual funds, but the piece of mind my wife and I have knowing we can write out a check and not have to pay a loan for just about anything that life throws our way is well, priceless.     

[RyeWhiskey]

I keep mine in my local credit union's rewards checking account which returns 3% on up to 10k (if requirements are met). Since my EF is only 5k, I use the rest as my everyday checking account. Very simple and easy. They also offer a savings account at 1.5% which some money spills over into for loan payments, etc.

[Davids]

I use Captial One 360 (Formerly ING), it is .75% interest. I know there are others that have slightly higher rates but for an emergency fund I am not going to go through the hassle of switching for what might be at best an extra dollar of interest, if that.

[rugorak]

I have a Money Market account with Sallie Mae. I can get checks to write from it if I want (I don't currently because it would just be something else to lose). Currently at 0.90%. Not worth moving for me at this point. Like most online banks it takes about 2 business days for most things to happen but that isn't a problem for me.

Also for all those saying to keep it local, just because the branch/bank is local doesn't necessarily mean  is local. Many small banks contract stuff out, and larger banks keep their servers, etc in a few major places. So in the even of a local event your bank may be as useless and unconnected as your home computer, smart phone, etc.

[WillPen]

Ours is in a high yield checking account that earns 3.5% on balances up to a certain amount. It's essentially a checking/savings hybrid for us. I'm not crazy about keeping that much cash around but I'm looking ahead to potential family/house hold changes for us in the near future (< 1 year)

[johnny847]

Another option is an I Bond from the Treasury. It's current return is 1.48%, but it's return depends on inflation:

Each I Bond has a fixed interest rate component, determined at the time of purchase (currently 0%). It is then added to the inflation rate (updated every 6 months for your I Bond) to determine the overall interest rate of your I Bond.
However, you can only cash in an I Bond from at least 1 year after time of purchase. Redeeming between 1-5 years from purchase incurs a penalty of the last 3 months of interest. After 5 years, there's no penalty to redeem.
You can only buy $10k of I Bonds a year (another $5000 if you overpay your taxes and get your refund as an I Bond)

Obviously, since the interest rate is not as good as a rewards checking account (typically 3-4%), if you're willing to play the game then that will give a better return. Also, because of that 1 year waiting period, if you want to do this you'll have to shift your emergency fund to I Bonds gradually.

Also, an easy way that I have read about (but not executed myself) to meet the 10-12 debit transactions per month on your rewards checking account is to load that money onto an Amex Serve (free to do online debit loads) and then use that to pay bills (such as your credit card, mortgage, etc). You can automate Serve loads to either daily, weekly, or monthly. So just load a dollar every day or something.

[Grateful Stache]

I'm like you, OP.

Mine is in a regular ole' savings account that earns nothing. I don't have any debit card/credit card/personal check access to it. If I need it, I have to drive to the bank, present ID and ask for cash. I like it that way, and it keeps the funds 'truly' for emergencies. I am not looking to get rich off of this money, so I'm not too concerned about the interest rate.

Cheers,

- Grateful