Where Should I Keep My Emergency Fund?

Transfers and withdrawals may be limited: Some high-yield savings accounts limit how many transfers you can make in a month before you're charged a fee. While this can be a good incentive not to dip into your emergency savings, if you find yourself needing to use your emergency fund regularly, you could face fees.

Minimum deposit requirements: Some high-yield savings accounts include minimum opening deposits and minimum balance requirements. But this can vary quite a bit, and some high-yield savings accounts require no minimum opening deposit.

May not outpace inflation: Even when high-yield savings accounts reach competitively high rates, the rate of inflation may still be higher than the rate of return in your savings account. This can erode the spending power of your savings over time.

Number of withdrawals may be limited: While money market accounts share some features with checking accounts, they may put a cap on how often you can access your cash. For example, some money market accounts may limit you to no more than six withdrawals and transfers per month.

May not outpace inflation: The limited returns you'll see on money deposited in a money market account may be lower than the rate of inflation.

May have minimum deposit requirements: Money market accounts may require you to deposit an initial sum to open the account, which can be anywhere from $100 to thousands of dollars, depending on the financial institution. That said, not all money market accounts include a minimum deposit requirement.

Early withdrawal penalties: Perhaps the biggest drawback of putting your emergency fund in a CD is that taking your money out early means forfeiting a certain number of months' accumulated interest. One way to counteract this risk is to buy no-penalty CDs. Another is to ladder your maturity dates to create more liquidity without sacrificing any interest.

Not as convenient as bank accounts: CDs don't typically offer the ability to write a check or make a quick transfer to your checking account. Compared to putting your emergency savings in a money market account or high-yield savings account, if you keep your emergency fund in CDs, accessing funds at the drop of a dime isn't as simple.

May have minimum deposit requirements: Many CD accounts require you to deposit a certain amount of money to open a CD. Minimum deposit requirements can range from $500 to more than $1,000. On the other hand, some CD accounts have no minimum deposit requirement, so check with the individual bank or brokerage to be sure.

Returns may not outpace inflation: As with other safe saving options, keep in mind that the interest rate a CD earns may not be high enough to keep up with the rate of inflation.

Minimum purchase requirement: T-bills are sold in increments of $100. If you're building your emergency fund up over time and saving less than $100 each pay period, for example, you would need to wait until you had enough to buy a T-bill.

Limited access to funds: T-bills are fairly liquid, insofar as they have maturities as short as four weeks. But you won't have the same easy access to your emergency fund as you would if you kept it in, say, a savings account. If you have an emergency bill, you would need to sell your T-bill before you could access the money to cover the expense.

Relatively low returns: Because T-bills are a safe short-term investing option, you can expect stable, low returns to match. That's the case for all low-risk investment options, but T-bills can have particularly mild rates of return—often, they return less than CDs or bonds, for example.