So you’re starting to build up that emergency fund. That’s great!!
As I’m sure you’ve heard by now, most Americans can’t afford a $400 expense without selling something or going into debt. Which is terrifying and crazy at the same time. Because what if something breaks that you have to fix? Or what if you need tires on your car? Those are expenses that you have to have money for. And if you can cash flow them with your regular income, then that’s great. But most people can’t. So there has to be some stash of money for things like this.
I’ve already talked about the need for an emergency fund here in this article about peanut butter (I love peanut butter BTW). But where exactly should you keep your emergency savings? Where should you stash your cash? Is a shoebox a good option, or should it be invested? What about just burying it in the backyard pirate style? Or even freezing it in a block of ice?
Believe it or not, these are all options I’ve heard from various sources. And while they’re not all terrible, there are better places to stash your cash.
The Purpose of an Emergency Fund
First, let’s address one of the biggest misconceptions when it comes to your emergency funds. It’s purpose. It’s an insurance policy to keep you out of debt when trouble hits. It doesn’t necessarily need to generate an income or pull in a good interest rate. It just needs to be there. When you need it. And it always needs to be there!!
Which means low to no risk. Which by extension means: no investing with your emergency fund!! It can’t be in your IRA. It can’t be in a Vanguard account. And it can’t be invested in real estate. Don’t even put it at risk with an index fund. Remember to keep it simple, stupid!!
Sure, you won’t make any money with the low risk options, but remember that’s not its purpose.
Which leads us to safer options. Options like a savings account, checking account, safety deposit box, shoe box, home safe, etc.
Other Things to Consider When You Need to Stash Your Cash.
The issue with emergency funds is the accessibility. This can be more of a balancing act, depending on your personality. You want it to be accessible enough that you can get to the funds quickly in order to help with your emergency. But you also need it to be hard enough to get to that you don’t use your emergency fund money for a new “toy” or vacation.
If you find yourself tempted to use your pile of emergency cash when you’ve already spent your budget’s worth of shoes for the month, you might want to keep it in a harder to reach place. Don’t keep it in cash in the top of your closet. And don’t keep it in your checking account under a pseudo-label that only you know.
We have some friends that have an old wall safe in their house. It was there when they moved in, and they have never been able to open it. I’ve wondered, what could be in there? Cash? A bunch of old papers? Or nothing? I’ll probably never know, and neither will they. Because they’re just not as intrigued by the thought of it as I am. It could contain someone’s emergency fund!! Just think of the possibilities. Maybe you have a house safe in which you stash your cash? This isn’t a bad option. But we can do better.
We had other friends that moved into their new house and found hundreds of dollars in old coins in a wooden workbench in their basement. They couldn’t understand why it was so heavy when they attempted moving it.
So be aware if you are buying an older house. You should keep an eye out for things hidden in the walls and under floorboards. That’s where many of the older generation felt comfortable stashing their cash. They didn’t trust banks. And after living through the great depression, I can’t blame them. But that’s also not where you should be storing your money.
So Where Should You Stash Your Cash/Emergency Fund?
With all this in mind, in my opinion, the best place that I’ve found is an online savings account. You can set them up to link to your checking account. That way you can access your money in a day or two in case of an emergency. And because it takes a day or two to actually get your money, you’re less tempted to spend it frivolously.
And if you think it’s not safe, just remember that any money you put in is FDIC (Federal Deposit Insurance Corporation) insured up to $250k. If you’re not sure if your bank is FDIC insured, you can check it out here (FDIC website).
My wife and I have been using Ally Bank for our emergency fund. They even pay a great interest rate (1.85% as of this writing). And though the interest earned is not necessarily the point here, it is nice to be able to earn something.
There are other online savings accounts that pay a decent interest rate as well. Capital One and Synchrony Bank come to mind. For a more exhaustive list of some higher interest bearing savings account, check out Bankrate.com.
Remember, don’t overthink or over complicate your emergency fund. Stash your cash in an online savings account.
So where do you keep your emergency fund?
Let me know in the comments, and thanks for reading and sharing.