Where do I put my Efund? - Bro
Note: No links in this article are referral links. These are exclusively for information. I don't make any money if you click a link. I truly believe that these are the best options at the time of writing.
Once you know how much you need in your emergency fund the next question is where to put it. The way to think about how an emergency fund should be laid out is to place money depending on how quickly you might need it. All emergency money should be immediately accessible but some places are a bit harder to get to than others. This can be a good thing because it can create a speedbump to prevent unnecessary access.
The first place to put your money is in your day to day checking account. I always have an extra 1 month's expenses in my checking account. This gives you an initial bit of cushion that can cover small emergencies and give you a bit of a buffer in case you don't quite do the math right when paying your bills. When selecting a checking account I look for a free account, free ATMs and free checks. Charles Schwab is a great option. The interest you will earn on your money is about 0.15%. This means if you keep $1,000 in your account they will pay you $1.50 a year. That is small but it beats the pants off of most major banks like Wells Fargo. Another option is Ally Bank or your local credit union.
The next place to put your money is in a savings account. I use a savings account because the money can be withdrawn without penalty and transfers typically take only a few business days if your checking and savings are not with the same bank. Savings accounts also typically pay a higher interest rate than a checking account. The current savings account rates are about 1.1%. When using a savings account you can only make a few transactions a month so be sure to move money in larger chunks. I keep about 4 months of expenses in a savings account. When picking a savings account look for a free account and high interest rates. A few examples of this would be Ally Bank or Capital One.
I then put any remaining emergency fund money in I-Bonds. I-Bonds will earn more than a savings account, are almost as easy to access as a savings account, and are issued by the US government making them the safest place to put your money. Both your checking and savings account should be FDIC insured. This makes them almost as safe as I-bonds but if a bank fails it can take just a little bit of time to get access to your money. The down sides to I-Bonds are you can only deposit $10,000 a year per person, they must be held for 1 year before removing your money, and if you remove your money in the first 5 years then you do not get a small part of the interest you have earned. The current rate for I-Bonds is 1.96% but this changes with inflation (the amount the cost of things goes up each year on average).
These three accounts are the main pillars of my emergency fund. The checking account is quick and easy, the savings account is one transfer away, and the I-Bonds help me to earn a little better interest rate. These three accounts are not the only option for emergency accounts. In the next article I will discuss some unconventional options for emergency funds.