Where to put my emergency fund?

Where should I put my emergency fund? Yes, the age old question.

If you are anything like me that emergency fund represents so much. Its a source of income if I were to lose my job. Its confidence knowing that I can cover a new set of tires or brakes for my car. Its even heat in the winter knowing I can buy a new furnace when mine goes out.

Where should I put my emergency fund is a question I asked myself for the longest time. When I first had it I didn’t even think this would be something that would cause me mental anguish.

Over the years I’ve held my emergency fund in three different spots, each one better than the last. Let me take you on that journey.

My first location: right next to checking

When I first established my emergency fund I kept it at my local bank, the same place as my checking account.

Every time I’d log in to see my checking account balance I’d see it. It’d just look at me. All those zeroes (ok ok it was only three zeroes).

Fortunately I’m not a spender. If you are a spender you must never keep your emergency fund in a place that you see it frequently. It may just be too much temptation.

Eventually the bank started asking me about investing it and I knew it was time to get out of there. Where to turn next?

where to put my emergency fund

Emergency Fund Needs

When it came time to move my emergency fund it got me thinking about what I actually needed. In other words, what would help me make my decision? I started to make a list.

Easy Access

The most important thing for any emergency fund is that I need quick access to it. If its going to take me a week to get access to the money then it really wouldn’t qualify as an emergency fund. I think it’d be more like a “you need money but slowly” fund.

I wasn’t quite sure what type of options were out there but I did know I’d need it with a couple days at least. I couldn’t quite think of an emergency that I’d need access to it immediately.

But not too easy access

On the other end of the spectrum I knew I didn’t want to keep it in my savings account. There it was actually too easy to access, not to mention I had to look at it all the time.

This input definitely ruled out some options.

Some amount of return

The last input was that I did want some amount of return. No I wasn’t going to invest it in stocks but I also thought it was reasonable to expect that it would do its best to keep up with inflation.

CD Ladder

The next location I parked my emergency fund was in a CD ladder. Someone I’ve wrote about before (and you may have heard of) named Mark Cuban has even discussed CDs before.

I figured if it’s good enough for him then it’s probably good enough for me. A CD ladder would also check all the boxes that I knew I was looking for to answer the question of where to put my emergency fund.

I looked around and found some pretty good rates at Edward Jones. Now I certainly wouldn’t recommend them for investing (they charge pretty high expense ratios) but for CDs they didn’t seem half bad.

I devised my own CD ladder, spoke to someone I knew and they set it all up.

Then the phone calls started to happen. Every few months I’d play phone tag with them so they could reinvest the expired CD into a new one. It wasn’t a huge pain but a pain nonetheless. 

While the CD ladder checked all my boxes I knew it wasn’t the long term solution I was looking for. I needed something that was maintenance free.

The online savings account

If I could put a better effect around that title I think I would. An online savings account! It checked all my boxes (at first glance) and seemed like the perfect solution.

I did need to do some digging. I didn’t quite know how much returns are in an online savings account as well as how long it would take to get my money if I needed it. Here’s what I learned:

Returns in an online savings account

The returns in an online savings account were actually better than I was anticipating. In fact they aren’t too far off from where my CD ladder was. In the grand scheme of things the switch would only cost me $50 a year or less.

Access to your funds in an online savings account

This was the area I was most unsure about. It turns out it takes 2 days max to get to your money. I couldn’t think of a situation in which I’d need a significant amount of money quickly. I think I could use a credit card to buy nearly anything until the money got to my account.

Putting my emergency fund in an online savings account

Now it came down to decision time. I didn’t quite know where to look. I did some searching and found a few names.

Ultimately I settled on Ally Bank (FYI I have zero affiliation with them outside of being a customer). I honestly couldn’t recommend them more. Setting up an account is easy and their customer service has been great. The most important thing was that they checked all my boxes. I think this is the long term solution for me.

Well there you have it. If you are looking for a place to store some money I definitely would take a look at online savings accounts. They checked all my boxes.