Where to Keep Your Emergency Fund
In the last post, we talked about how much you should keep in an emergency fund. Now comes the next logical question:
Where should that money actually live?
This decision matters more than people realize. Put it somewhere too risky, and your emergency fund may not be there when you need it. Put it somewhere too restrictive, and you may not be able to access it quickly. The goal isn’t to maximize returns — it’s to balance safety, liquidity, and simplicity.
Let’s walk through the most common options and when each one makes sense.
The Golden Rule of Emergency Funds
Before diving into specific accounts, keep this principle front and center:
An emergency fund is insurance, not an investment.
Its job is to:
- Be there when something unexpected happens
- Be accessible quickly
- Not lose meaningful value
If your emergency fund grows a little, great — but growth is secondary.
Option 1: High-Yield Savings Account (HYSA)
For most people, this is the best place to keep an emergency fund.
Why it works
- FDIC insured
- Easily accessible
- Earns interest (often meaningfully more than traditional savings)
- No market risk
High-yield savings accounts typically sit at online banks or financial institutions that pass higher interest rates along to customers. While rates change over time, they consistently outperform traditional savings accounts at brick-and-mortar banks.
Best for:
- Most households
- First-time emergency funds
- Anyone prioritizing simplicity and safety
If you’re only going to choose one place to keep your emergency fund, this is it.
For those curious about the best bank or financial institution, there are many guides you can find online for current rates. The following are a few names to help you get started as you look for which financial institution to use for a HYSA: Sofi, Capital One, Robinhood, Barclays, American Express, CIT Bank, and so many others. The key is that rate matters, but not as much as flexibility. There may be instances where you need to sacrifice one percent or half of a percent to have more flexibility which is entirely reasonable–at the end of the day one percent of half of a percent won’t drastically change the amount of money you earn on this account. If you’re looking for a HYSA you’re typically looking for an interest rate around 3% to 6% depending on the economic environment at the time. At the time of writing this, rates on the lower end are around 3.0% but offer more flexibility in moving money around and rates on the higher end are around 4.0% but tend to be more restrictive.
Option 2: Traditional Savings Account (Convenience Over Yield)
A regular savings account at your existing bank isn’t wrong — it’s just usually less optimal.
Pros
- Immediate access
- Easy transfers
- Familiar interface
Cons
- Interest rates are often very low (commonly 1.00% or less)
- Loses purchasing power over time
This option can make sense if:
- You need same-day access to funds
- You value simplicity over yield
- The emergency fund is small and temporary
For many people, a traditional savings account works best as a landing spot for part of the fund — not necessarily the entire balance due to the limited returns especially considering HYSA’s exist and is an almost identical product with the advantage of a higher interest rate.
Option 3: Money Market Accounts or Funds
Money market accounts (MMAs) and money market funds (MMFs) sit somewhere between savings and investing.
Why they’re popular
- Higher yields than traditional savings (sometimes similar to HYSAs)
- High liquidity
- Generally low risk
Important distinction
- Money market accounts are usually FDIC insured
- Money market funds (inside brokerages) are not FDIC insured, though they are historically very stable
These can be a good alternative to HYSAs — especially if you already have accounts set up — but it’s important to understand which type you’re using.
Option 4: Brokerage Accounts (With Guardrails)
This is where things get more nuanced.
A taxable brokerage account can work for part of an emergency fund — but only under certain conditions.
When a brokerage can make sense
- Your emergency fund is large
- You’re financially stable
- You keep funds in low-volatility assets (cash sweep, money market funds)
- You understand market risk
When it doesn’t
- If the money is invested in volatile stocks
- If you’d panic during a market downturn
- If access would be delayed or complicated
Markets don’t care when your emergency happens. A job loss or medical expense often coincides with market stress — exactly when you don’t want your emergency fund exposed to volatility. This tool can be beneficial; however, it’s best coupled with a HYSA or traditional savings account to help offset the volatility. Putting a reasonable portion (let’s say 1-3 months expenses) in the HYSA and then putting the remainder that you deem necessary for your emergency fund in low risk investments may be the best strategy for the common person, but again, everyone’s financial situation is unique and there may be nuance that needs to be applied to any one of these strategies.
The bottom line, if you use a brokerage at all, keep the risk minimal and the access easy.
What About CDs?
Certificates of Deposit (CDs) can play a role — but cautiously.
Pros
- Predictable returns
- No market risk
Cons
- Funds may be locked up for an extended period
- Early withdrawal penalties
Some people use CD ladders so a portion of funds becomes available regularly. This can work for larger emergency funds, but you should still keep a liquid portion readily accessible–as mentioned earlier, disaster doesn’t wait for the most opportune moment to strike (it can happen whenever).
Where NOT to Keep an Emergency Fund
On occasion, these options have been suggested for emergency funds — but the bottom line is that they usually are a bad ideas:
- Retirement accounts (401(k), IRA)
- Crypto
- Long-term bonds
- Illiquid investments
If accessing the money would trigger penalties, taxes, or forced selling at the wrong time — it’s not emergency-fund friendly.
A Practical Framework
Instead of asking “What’s the best account?”, ask:
- Can I access this money within a few days?
- Is it protected from large losses?
- Will it still be there during a downturn?
- Is it simple to manage?
If the answer is “yes” to all four, it’s probably a good fit.
Summary
For most people, the best emergency fund setup looks like this:
- Primary balance in a high-yield savings or money market account
- Optional secondary portion in ultra-low-risk brokerage cash options
- Zero pressure to chase returns
The purpose of an emergency fund isn’t to grow — it’s insurance to help protect everything else you’re building. If you have a unique situation and would like second thoughts contact us free of charge.
In the next post of this series, we’ll dive deeper into how emergency funds interact with investing, debt payoff, and long-term planning.
– Brendan Tiedeman, CPA, CVA
