Where to Put Your Emergency Savings

The purpose of an emergency fund is to have access to money when you need it. In banking terms that means it's "liquid."  While you might be thinking that stashing your cash under your mattress or in a coffee can in your freezer is you best bet, there are other safer alternatives for your emergency fund.

• A savings account:  The benefit of a savings account is that it is both accessible—you can get it when you need it—and safe.  Most savings accounts are covered by FDIC insurance of up to $250,000, meaning that in the unlikely event of a bank failure your savings would be insured and safe.
• To earn a little more interest, consider a money market account:  Money market accounts differ from savings accounts in that they are low-transaction checking accounts that require a higher minimum balance.  In return for keeping more of your money in this account and having relatively little activity, the bank rewards you with a slightly higher interest rate.
• If you don't trust yourself, try an online account:  While a savings or money market account linked to your checking account provides you with the easiest access to your emergency fund, you may feel that you might not be able to trust yourself with having that money so readily available nearby.  An online account might solve that conundrum.  An online bank can offer FDIC-insured savings accounts, sometimes with interest rates comparable to money market accounts since they do not have bricks-and-mortar offices to support.  The drawback with online accounts is immediate access—it may take two business days or more to transfer a balance from your online account to your checking account.  And time may be of the essence with an emergency expense.

If you don’t think you can get an account at a bank or credit union, consider one of the following options:

• A prepaid debit card.  Be aware of fees.  Some prepaid debit card charge fees for adding money, using the money on them, and checking the balance you have.  It pays to shop around and compare features and costs
• A safe place in your home.  While this may be convenient, you run the risk of this money being stolen, misplaced, lost in fire, or used when you run out of cash.