Smith 
Let’s face it, emergency savings accounts aren’t the most exciting thing. They exist to be there when you need them, meaning safety is the main priority. But while your money sits and waits for a rainy day, it doesn’t hurt to earn some interest on it. Here are the best places to keep your emergency funds:
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Online Bank Accounts
If you’re looking for safety and good interest rates, online bank accounts are a great choice. Even better, in today’s digital age, you can access your money quickly, just as you would from a local bank. Many online banks offer higher interest rates, which makes them appealing. For instance, CIT Bank offers up to 0.65% APY on its Savings Builder account, while Ally Bank pays 2.20% APY on its Online Savings account. Despite not having local branches, online banks provide almost the same liquidity with significantly better interest rates, making them an excellent place for emergency funds. -
Local Banks
Your local bank is reliable and offers immediate access to your money, but interest rates are usually pretty low. Whether it’s on savings, checking, or CDs, don’t expect much. For example, the national averages for savings are around 0.10% APY, and for a 6-month CD, it’s about 0.41% APY. However, the convenience of quick access in an emergency can still make local banks a viable option. -
US Treasury Bills
US Treasury Bills are one of the safest investments, backed by the full faith and credit of the US government. They can be purchased through the Treasury Direct portal in denominations as low as $100, with terms ranging from a few weeks to a year. Current yields are attractive, making them a solid, low-risk place to store emergency funds. -
Laddered Certificates of Deposit (CDs)
CDs often offer higher interest rates than savings accounts, especially for longer terms. However, emergencies don’t wait for your CD to mature, and early withdrawals come with penalties. A smart strategy is to create a “CD ladder,” where you divide your money into several CDs with staggered maturity dates. For example, if you have $12,000, you could invest $1,000 in a new CD each month. This way, one CD matures every month, providing liquidity while earning a better return. -
Betterment
If you’re looking for higher returns and are okay with a bit of risk, consider a robo-advisor like Betterment. For a small annual fee, Betterment offers a diversified investment portfolio. While it’s riskier due to stock market exposure, you can focus on bonds for more stability. Betterment can be a secondary emergency fund, with the bulk of your money in liquid assets and the rest invested for higher returns. -
Roth IRA
Though unconventional, a Roth IRA can be a good emergency fund. Typically, withdrawals from retirement accounts before age 59½ incur taxes and penalties, but Roth IRA contributions can be withdrawn tax-free. While mostly for retirement, a Roth IRA can grow with higher returns, and in a pinch, you can access your contributions without penalty. It’s a dual-purpose tool for emergencies and long-term savings.
Where Should You Keep Your Emergency Fund?
You have multiple options beyond just a local bank. Diversifying your emergency savings can make them work harder for you. Keep a small amount in a high-yield savings account for immediate access, invest a bit more in safe, higher-yield options like CDs or Treasury Bills, and consider tools like Betterment or a Roth IRA for growth. This way, your emergency fund is liquid while also earning more than the minimal interest offered by local banks.
The Bottom Line
When it comes to emergency funds, balancing safety and returns is key. Online bank accounts provide a good mix of security and yield. Local banks offer easy access but low interest. US Treasury Bills are super safe, and laddered CDs can provide both returns and liquidity. Betterment and Roth IRAs offer growth potential and the possibility of penalty-free withdrawals. Diversifying these options can help create a robust emergency fund tailored to your needs.
