Where to put your emergency fund? | Vanguard (2024)

FAQs

Where to put your emergency fund? | Vanguard? ›

Where to put your emergency fund. Since spending shocks can occur at any time, Vanguard recommends you keep the portion of your emergency savings to cover spending shocks easily accessible, either in cash or cash equivalents.

Bank or credit union account — If you have an account with a bank or credit union—generally considered one of the safest places to put your money—it might make sense to have a dedicated account where you can keep and maintain these funds. Prepaid card — A prepaid card is a card that you can load money onto.

While the size of your emergency fund will vary depending on your lifestyle, monthly costs, income, and dependents, the rule of thumb is to put away at least three to six months' worth of expenses.

A high-yield savings account might be the best place to keep your emergency fund. Not only are your funds accessible in this type of bank account, but you'll also earn interest on your deposits.

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.

High-yield savings accounts, CDs, and money market accounts are generally considered low-risk, as they are insured by the FDIC up to $250,000. Treasury securities are backed by the full faith and credit of the U.S. government, making them among the safest investments.

An emergency fund can help you avoid financial disaster by providing you with money when you need it. You'll likely want to keep your emergency fund in a high-yield savings account. Putting the money into a CD probably isn't a good idea because CDs require you to tie up your cash.

It's a good idea to keep enough cash at home to cover two months' worth of basic necessities, some experts recommend.

The general rule of thumb is to keep three to six months' worth of basic essentials stashed in your emergency fund. But how much you need to feel financially secure may differ.

Is 3 months emergency fund enough? ›

Financial experts often say that it's important to maintain an emergency fund with enough cash to cover three months of essential bills. That may be enough to get you through a period of unemployment during normal times, but not a prolonged recession.

In addition to keeping funds in a bank account, you should also keep between $100 and $300 cash in your wallet and about $1,000 in a safe at home for unexpected expenses. Everything starts with your budget. If you don't budget correctly, you don't know how much you need to keep in your bank account.

Mistake #1: You haven't saved enough

Remember, you don't need three to six months of all your expenses, just “must-haves” such as your mortgage or rent, utilities, taxes, and insurance bills.

Ideally, you should have at least three to six months' worth of expenses in a dedicated emergency fund. This may sound like a lot, especially if you're just starting to save for a rainy day, but you can get there, though not overnight. Start by aiming to set aside at least $500 to $1,000 in case of unexpected expenses.

The key to saving money is to: focus, make saving a habit and a priority, and discipline. Your income is not a key to saving money. Compound interest is interest paid on interest previously earned.

And if you have to spend any of the money, you should plan to replace it. You might also consider buying U.S. Treasury bills with some of your emergency fund money. They, too, can be timed to mature on a regular schedule and, like CDs, they tend to pay more interest than a simple savings account.

The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.

How much emergency fund should I have? Sudden car repairs, medical emergencies or job loss can all lead to unexpected debt if you're not prepared. It's difficult to predict how much these or other emergencies could cost — but three to six months' worth of expenses is a good goal.