Trending Now :

Quantitative Tightening, Inflation, & More The Stock Market Is On Sale Investors Need to Netflix and Chill Credit Card Fixed-Interest Loans: Explained Are You Money Smart? Build Your Credit for Free Filing Your Taxes in 2022 Credit Cards that Offer 2% Cashback on All Purchases Navient Ordered to Cancel Student Loans U.S. Mortgage Interest Rates Soaring Two Big Banks Cut Overdraft Fees 2022 IPO DRAFT CLASS: Ranking the Top 10 Prospects Re-Drafting the 2021 IPO Draft All You Need to Know about Buy Now Pay Later companies Credit Card Sign-Up Bonus or SUB The Best Credit Card for the Middle-Class Make An All-cash Offer with No Cash Capitalism Always Ignores Politics All You Need to Know about the Financial crisis of 2007-2008 American Families Face Serious Rent Burden Savings Is An Expense You Can’t Build Generational Wealth If You Are Broke IT’S OFFICIAL: Robinhood is a Meme Stock All You Need to Know About Biden Mortgage Modifications & Payment Reductions Apple Card 2nd Year Anniversary: Should You Get It Now Wells Fargo to Pull Customers Personal Lines of Credit The Rise of Individual Investors The US Housing Market Is Booming. Is a Crash Ahead? Financial Literacy: How to Be Smart with Your Money Non-Fungible Token (NFT):EXPLAINED SKYROCKETED CEO PAY & LONG LINES AT FOOD BANKS Amazon Workers Want to Unionize Another Major City Piloted Universal Basic Income The New Bubble: SPACs SUBMIT YOUR PPP ROUND 2 APPLICATION BEFORE MARCH 31ST Robinhood-GameStop Hearing & Payment for Order Flow Guess Who’s Coming to Main Street Democratic Senators Say No to $15 Minimum Wage BEZOS OUT! President Biden Most Impressive Act Went Unnoticed: CFPB Biden $1.9 Trillion Stimulus Package 2021 IPO DRAFT CLASS: Ranking the Top 10 Prospects $25 Billion Emergency Rental Assistance NO, TESLA IS NOT WORTH MORE THAN TOYOTA, VOLKSWAGEN, HYUNDAI, GM, AND FORD PUT TOGETHER AMAZON TO HAND OUT ITS WORKERS $300 HOLIDAY BONUS Where Does the American Middle-class stand on Student Debt Relief? Joe Biden’s Economic Plan Explained 4 TYPES OF BAD CREDIT REPORTS AND HOW TO FIX THEM What Is the Proper Approach to Not Buy Too Much House? FISCAL STIMULUS PLANS STILL IN ACTION How to Pick Investments for Your 401(k) 10 Simple Ways to Manage Your Money Better All You Need to Know about Reverse Mortgage All You Need to Know about Wholesale Real Estate Credit card Teaser Rates AVERAGE CREDIT CARD INTEREST RATE SURGES TO 20.5 Percent Trump Signs 4 Executive Orders for Coronavirus Economic Relief The Worst American Economy in History WHY CREDIT CARDS MINIMUM PAYMENTS ARE SO LOW? 10 BIGGEST COMPANIES IN AMERICA AND WHO OWNS THEM White House Wants to End the Extra $600-A-Week Unemployment  10 Countries That Penalize Savers FEWER CREDIT CARD BALANCE-TRANSFER OFFERS ARE IN YOUR MAILBOX Private Payrolls and the Unemployment Rate SHOULD YOU BUY INTO THE HOUSING MARKET RESILIENCY? WILL WE GET A SECOND STIMULUS CHECK The Child Tax Credit and Earned Income Tax Credit THE RETURN OF BUSINESS CYCLES Should You Request a Participant Loan or an Early 401(k) Withdrawal? Homebuyers Should Not Worry about Strict Mortgage Borrowing Standards The Potential Unintended Consequences of Mortgage Forbearance All Business Owners Need to Know about the Paycheck Protection Program 10 MILLION UNEMPLOYMENT CLAIMS IN TWO WEEKS HOW WILL THE GLOBAL MIDDLE-CLASS RECOVER FROM A SECOND ECONOMIC RECESSION IN A DECADE? WILL U.S. CONSUMERS CONTINUE TO SPEND? HOW’S YOUR 401(k) PRESIDENT TRUMP SIGNS $2.2 TRILLION CORONAVIRUS STIMULUS BILL MIDDLE-CLASS NIGHTMARE: MORE THAN 3.3 AMERICAN FILED FOR UNEMPLOYMENT CLAIMS IN THE US LAST WEEK. LAWMAKERS AGREED ON $2 TRILLION CORONAVIRUS STIMULUS DEAL CORONAVIRUS STIMULUS PACKAGE FAILED AGAIN IN THE SENATE APRIL 15 (TAX DAY) DELAYED DEMOCRATS AND REPUBLICANS DIFFER ON HOW $2 TRILLION OF YOUR TAX MONEY SHOULD BE SPENT YOU CAN DELAY MORTGAGE PAYMENTS UP TO 1 YEAR, BUT SHOULD YOU? 110 Million American Consumers Could See Their Credit Scores Change The Middle-Class Needs to Support Elizabeth Warren’s Bankruptcy Plan The SECURE Act & Stretch IRA: 5 Key Retirement Changes 5 Best Blue-chip Dividend Stocks for 2020 9 Common Bankruptcy Myths 401(K) BLUNDERS TO AVOID Government Policies Built and Destroyed America’s Middle-Class & JCPenney Elijah E. Cummings, Esteemed Democrat Who Led the Impeachment Inquiry into Trump, Dies at 68 12 Candidates One-stage: Who Championed Middle-Class Policies the Most WeWork: From Roadshow to Bankruptcy Stand with the United Auto Workers Formal impeachment Inquiry into President Donald Trump America Is Still a Middle-Class Country SAUDI OIL ATTACKS: All YOU NEED TO KNOW THE FEDERAL RESERVE ABOLISHED BUSINESS CYCLES AUTO WORKERS GO ON STRIKE Saudi Attacks Send Oil Prices Spiraling REMEMBERING 9/11 What to Expect from the 116th Congress after Their August Recess Should You Accept the Pain of Trump’s Trade War? 45th G7 Summit-President Macron Leads Summit No More Upper-Class Tax Cuts Mr. President! APPLE CARD IS HERE-SHOULD YOU APPLY? THE GIG ECONOMY CREATES A PERMANENT UNDERCLASS 5 REASONS IT’S SO HARD FOR LOW-INCOME INDIVIDUALS TO MOVE UP TO THE MIDDLE CLASS ARE YOU PART OF THE MIDDLE CLASS? USE THIS CALCULATOR TO FIND OUT? WELLS FARGO IS A DANGER TO THE MIDDLE CLASS The Financialization of Everything Is Killing the Middle Class
Accessing your emergency fund
American Middle Class

Where to Put Your Emergency Fund

The estimated reading time for this post is 218 seconds

Accessing your emergency fund the moment you need it is the only thing to keep in mind when figuring out where to invest it.  Even with the record-high stock market, historic low unemployment rate, and pre-recession level homeowners’ equity, millions of Americans are only 400 dollars away from financial disaster.

An emergency fund is a scarcity in America’s middle class. If you spend more money than you earn every month, read our article on how to save money on a budget.  If you happen to be amongst those who manage to build a sizable emergency fund, you need to know where to put it.  

After all, you don’t want to leave it under the mattress forever, even if you live in Europe, where many banks charge you a fee to safeguard your money.  The consensus amongst personal finance professionals is you need to have at least six months’ worth of living expenses in your emergency fund.  Here are the four places you need to put your emergency fund:

Savings Account

You should have a checking and savings account.  You use your checking account for cash inflows (wages and other incomes) and cash outflows (living expenses and savings). Every month after you pay all your living expenses, you should transfer your remaining balance to your savings account. 

Checking account pays zero to no interest, so you shouldn’t keep your emergency fund in there.  Brick and mortar banks such as JP Morgan Chase and Bank of America pay little annual percentage yield (APY) on their savings account.  For example, Chase Savings account interest pays one basis point or 0.01%. If you have $10,00 in the Chase Savings, you will earn $100 worth of interest income every year.

To earn more interest income, you should transfer your emergency fund to an online bank; they pay a higher interest rate on a savings account.  As of this writing, American Express National Bank is offering a 1.90% annual percentage yield (APY).

Money Market Accounts

Putting your emergency fund in a money market account will earn a higher interest rate than it will be in regular checking and savings accounts.  Although you can write checks and make debit purchases from a money market account, it’s best that you used as a savings vehicle. Keep a regular checking account from a brick and mortar bank and open a money market account with an online bank.

The Federal Deposit Insurance Corporation (FDIC) insures money market accounts. You do get a higher annual percentage yield (APY) and insurance protection. However, money market accounts require that you maintain a minimum balance.

As of this writing, Banco Bilbao Vizcaya Argentaria (BBVA) USA is offering 2.15% APY with a $10,000 minimum on its money market account. In this environment of the super-low interest rates, BBVA’s APY is excellent.

Short-term Certificates of Deposit (CD)

Certificate of deposit (CD) requires you to part ways with your money for a specific time, ranging from 6 to 60 months.  

You should invest your emergency fund in short-term CDs only.  You don’t want to tie up your emergency fund for longer than one year, preferably six months. Since we are living in an inverted yield environment, short-term interest rates are higher than long-term ones. You don’t have any incentives to lock your cash for longer than one year. 

As you can see on the above chart from Capital One, you get 2.20% APY for 12 months while you get only 1.60% for 60 months. Again, you shouldn’t tie up your cash for more than 12 months.

U.S. Treasury Bills

U.S Treasury bills (T-Bills) are short-term U.S. government debt obligations back the Treasury Department with a maturity of one year or less. You are lending your emergency fund to the United States’ Federal Government. 

You can buy a T-bill with a 4, 8, 13, 26, or 52 weeks maturity date. They are like bank CDs, but you need a brokerage account to buy them.  A brokerage account is an investment account that lets you buy and sell financial securities such as stocks, bonds, and T-bills.  You can open a Schwab or Fidelity brokerage account and buy T-bills with no fee.

Your emergency fund is not an investable asset, so easy access to it is more important than investment return.  Those four options we discussed above are the safest and short-term places to put your emergency fund and access it the moment you need it.

BACK TO TOP
Author

Senior Accounting & Finance Professional|Lifehacker|Amateur Oenophile

Continue Reading
Click to comment

Leave Comment

Advertisement
Finance / Jun 11, 2022

Quantitative Tightening, Inflation, & More

The estimated reading time for this post is 137 seconds The median one-bedroom rent is...

Resources / May 29, 2022

The Stock Market Is On Sale

The estimated reading time for this post is 130 seconds The stock market is on...

Resources / Apr 20, 2022

Investors Need to Netflix and Chill

The estimated reading time for this post is 173 seconds Investors need to Netflix and...