Saving an emergency fund is a good start, but where you put those savings can matter even more

If you lose your job, face a loss in income, or wind up with a huge bill you didn’t expect, having an emergency fund can help you. In the leanest financial times, having some money set aside could even help you avoid racking up credit-card debt or sidestep foreclosure.

But where should you keep your money? Probably somewhere that it can grow — and somewhere you can access it quickly. Also note that it’s crucial to keep your emergency funds separate from your regular checking and savings to make sure you don’t spend it accidentally.

Here are the best places to keep your emergency savings, no matter how much you decide to save:

1. High-yield savings account

While you won’t get rich storing your emergency fund in a high-yield savings account, today’s rates can help you keep up with inflation and earn something extra. The best high-yield online savings accounts are offering an annual percentage yield (APY) between 2% and 2.5%, and many come with no fees and special incentives.

With the CIT Bank Savings Builder account, for example, you can score 2.45% APY if you keep $25,000 on deposit or transfer at least $100 per month into your account, with no ongoing fees or monthly fees.

2. Certificates of deposit (CDs)

Certificates of deposit offer another smart way to store your emergency fund. They offer a fixed interest rate for a specific amount of time (such as Synchrony Bank’s 12-month CD for 2.80% APY, which requires a minimum deposit of $2,000). The catch is that CDs make it harder to access your money — if you need it before the end of the CD’s term, you’ll typically need to pay a penalty.

Many consumers opt to “ladder” their CDs as a result, meaning they configure a collection of CDs so they don’t all come due at the same time.

This could mean storing your emergency fund in four different CDs: a 12-month CD, an 18-month CD, a 24-month CD, and a 36-month CD. That way, you have a nearly constant source of funds reaching maturity you can access.

3. Roth IRA

The Roth IRA is easily one of the most dynamic accounts available for retirement, mostly because you fund it with after-tax dollars. Once you begin building up a Roth IRA account, your money also grows tax-free until you’re ready to use it. The best part is your distributions will be tax-free once you begin taking them in retirement or any time after age 59 ½.

Making the Roth IRA even more versatile is the fact that you can withdraw contributions (but not earnings) anytime without penalty. This is why some people opt to store all or part of their emergency fund in a Roth IRA. The money has the potential to grow, but they have the option to access their contributions if they need to.

Roth IRA contribution limits went up in 2019 for those who qualify. If you meet income guidelines, you can now use this account to save up to $6,000 (or $7,000 if you’re age 50 or older) per year.

4. Money-market account

Money-market accounts offer yet another low-risk way to score healthy returns on your emergency savings. This type of account can earn about the same amount as a high-yield savings account (or slightly more), but it also keeps your cash accessible so it’s there when you need it.

Just be aware of fees that could chip away at your returns. Also make sure you compare accounts to find the highest return available for the least amount of work — and a minimum deposit requirement you can meet. As an example, CIT Bank’s Money Market fund offers 1.85% APY with a minimum deposit of only $100 and no monthly service fees. With Investors Bank, on the other hand, you can score 2.40% APY with no minimum balance requirement and no hidden fees.

5. All of these

Maybe you like the idea of a high-yield savings account that’s easy to access but crave some of the higher returns you could get with a Roth IRA. Perhaps you like the money-market idea but also want to open a CD to score a higher guaranteed return.

There’s nothing stopping you from using more than one account on this list to store your emergency savings, and there could be real benefits for doing so. Keeping part of your savings easily accessible in a savings account while storing the rest in an account that’s more difficult to access (but provides higher returns) could be the best of both worlds. Depending on the size of your emergency fund, it’s highly possible you won’t need to access all of it at once anyway.

So, why choose? You don’t really have to.

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