Where to Stash Your Emergency Cash

In the world of personal finance advice, there is a lot of harping on the importance of having an emergency fund, so hopefully you’ve been working on yours. Once you’ve got a decent amount of cash (wondering how much you should have? click here) spend some time considering where you’ll keep your funds.

The obvious choice might be a savings account, but there your money will earn dismal interest rates. The three  features you want from an emergency account are:

1) Liquidity-Emergency aren’t usually scheduled, you’ll need your funds to be available when you need them.

2) Highest Return—You want your money to work as hard as possible, but higher returns generally mean higher risks. Try to find the highest return possible with an account that is…

3) Federally Insured. You might get higher returns by investing your emergency fund in stocks, but your losses could also be bigger and then you’re taking a risk that defeats the purpose of your emergency fund.

Meeting these requirements significantly narrows your choices. For insured accounts you are mainly looking at Money Market Accounts (not to be confused with money market mutual funds that may earn more but are not insured), Certificates and bonds.

Money Market Accounts earn just a little more than regular savings, but are the most liquid choice.

Certificates earn a fair return, but you’ll need to use your noggin to keep your accounts liquid. People are often afraid to put their money into certificates because they don’t like tying up their funds. To get around this issue, you could try a laddering strategy.

Using the laddering strategy you’ll spread the funds over accounts ranging from one to five years. Break up the funds into smaller certificates with varying maturities. The laddering strategy helps with liquidity and lets you take advantage of rising interest rates.

A quick visit with a financial advisor may be your best bet if you want your emergency fund to earn the highest rate while remaining secure and available. The financial consultants with our Investment and Retirement Center offer a no-cost, no-obligation assessment of your goals and can give you more ideas on how to get the most out of your emergency fund.


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