Where should I keep my emergency savings?

March Madness starts this week. This is the good March Madness, not the madness that has already been occurring. I don’t care what your friend told you, you don’t have a perfect bracket. The odds are 1 in 9,223,372,036,854,775,808. When you take your extensive knowledge of the sport into account, they improve slightly to 1 in 9,223,372,036,854,775,807. Good luck.

With things looking pretty gloomy right now, you might be double checking your emergency savings. Maybe you asked, is this the best place to keep it? Could it be doing more? 

The bottom line is your emergency savings should primarily be in a high yield savings account or bond/money market fund. You don’t want any of it stocks or all of it in a low interest checking account.

As much as it hurts me to say, the ROI of your emergency savings should be a secondary consideration. The purpose of your emergency savings is to provide you a financial cushion in case you lose your job, get into an accident, or have an emergency. The first thing you should ask is – is this safe and rapidly accessible? Then, you should ask – is this providing a non-zero return?

We love keeping things as simple as possible at the Dollar Debrief. So, the simplest answer I can give you is to have at least one month instantly available at your primary bank and the rest set aside in a bond fund or high yield savings account. If your primary bank account has a high interest savings account (+3%), that is awesome and super convenient. Your money won’t grow by much, but it will be there when you need it. That is what matters. That’s the entire point of the emergency fund.

Here is how Jules and I handle our six-month emergency savings:

We have one month of funds in our checking account. Everything goes into and out of this account – paychecks, bills, mortgage, insurance, everything. We start each month by transferring our monthly savings into our savings account to bring the checking account down to one month. Throughout the month, paychecks bump us up and bills bring us down (literally and metaphorically). At the end of the month / start of the next, mortgages come out and we reset by moving our savings. This system allows for two things: 1. We pay ourselves first and 2. Peace of mind if our credit card bill is higher than normal it won’t bounce.

Then, in our savings, we have one more month of funds. Our checking and savings are both with USAA, so if we need to dip into that extra savings, it is near instantaneous. For the record, I will be dropping USAA purely because I hate the horrible Gronkowski ads. I know part of my money is going to fund those and that hurts too much.

So, two of the six months of funds are in zero risk, liquid, low interest accounts.

The next four months are in a Schwab Money Market Fund - SWVXX. Schwab (or whatever brokerage you use) offers several money market funds that invest in various bonds. Returns vary slightly, but the average is 4% right now. This also changes drastically as the Federal Reserve cuts or raises interest rates. At 4%, bond funds provide a small but very safe return. The drawback is this is not instantly available. It trades like any mutual fund. It takes three days to receive funds. Thankfully, this has never been a problem since I have two months instantly available with USAA.

So that’s what works for us. Two months instantly available with little ROI but zero risk and four months available in a couple days with a small ROI and next to zero risk.

This is not the only solution, just a solution.

Other than bonds and money market funds, a lot of people use high yield savings accounts. The only reason I use money market funds is because I already have an account with Schwab, and I didn’t want to open another account at a different bank.

Some people use Certificate of Deposits (CDs) for their emergency fund. I would advise against this because if you must withdraw your money before the end date, you will pay several fees. You can’t predict when you will need your emergency fund, and a CD penalizes you if have an emergency, adding insult to injury (literally).

A CD is great for other savings though. Let’s say you have set aside $10,000 for a new car but are waiting for the 2026 model, you can place the money in a CD, lock in a rate, and then use the money as planned months later.

No matter where you keep your emergency savings (as long as it’s not in stocks), you must have one. With the market in correction territory (down 10%), selling stocks to cover an emergency expense destroys future gains and solidifies losses.

Let your investments work for you and let your emergency savings cover your emergencies.

What We’re Listening To:

Podcast: Freakonomics - Ten Myths About the U.S. Tax System. I have stopped recommending things in every newsletter because it felt forced. So, I am being more deliberate when recommending things. This podcast is an amazing listen. No matter how much you think you know about our taxes, you will learn something.

Debrief on Deck

Next week, we will talk about credit card technology. Where do I tap? How do I tap? Why do I tap? I feel like we all just learned how to insert and now they are changing it again!

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on Instagram.

Until then, stay the course.

Disclaimer