After reflecting on a recent situation in which we could not access our account through an ATM, I began to wonder what the best type of account would be for our emergency fund(s).
At the moment, we have two savings accounts: one at our local bank and one with an online savings account. Our local bank houses our “escrow” account for our home’s insurance and tax payments, but it also doubles as a savings account in an extreme emergency.
Because of the emergencies we’ve recently experienced and the trouble we had with the ATM at our local bank, we decided to reassess our emergency fund, especially what we think we should save and where we should save it.
There are a TON of opinions regarding where to store emergency currency as well as an emergency fund, so I’ve tried collecting some of the best here that I think could be plausible for us…
Emergency Currency Account
Emergency currency refers to bills and coins, which we don’t keep in our home or on our persons. However, we are reassessing our approach to emergency currency to see if we can find a safe way to store money that we can easily access.
I heard this one on Radical Personal Finance: melt ice cream, put emergency currency in a plastic bag, put bag into the ice cream, and refreeze the ice cream. That’s clever, but a little too tempting because I like ice cream A LOT.
Some people have safes for stuff like jewelry and tax returns, perhaps even gun safes, in their homes. As long as the safe is locked at all times and we remember the combination, this might be an option for storing emergency currency. Since we have zero valuables, this could be overkill for us.
Safe Deposit Box
Withdraw money from the bank and put it in a box at the bank? Apparently, this is still a thing. Given the recent data breach, a safe deposit box might be a good place to store backups of things, rather than on the cloud. I think action movies featuring bank heists are the reason why I never gave serious consideration to the safety of a safe deposit box.
Emergency Fund Account
Our emergency fund is a larger amount of money set aside to cover our living expenses in the event of a health crisis or job loss. This is not currency we have on hand. It’s “digital” money, if you will, stored at banks.
Local Bank Savings Account
Since we paid off our mortgage, we lack an “escrow” account. Each month, we have an automated transfer sending a little money from our checking account to a savings account, all within one bank. However, this account doubles as an emergency fund in the event that we need to get emergency cash ASAP.
Local Bank Checking Account
Our one-and-only checking account is a holding account, of sorts. We keep little cash here to minimize risk — only enough to pay our bills each month. Instead of keeping more money in this account, which would increase our risk, we may consider opening a second checking account for emergency purposes or even when traveling.
Online Savings Account
There are tons of options for online savings accounts, including Ally, Synchrony, and Discover Bank. These online savings accounts can be connected to other accounts to easily transfer money. At the moment, our online savings account is where 95% of our emergency fund lives and it’s just difficult enough to access that it’s a good deterrent for overspending. Because we can’t access the funds for a couple of days, it’s not good for emergency currency needs — strictly an emergency fund account.
Money Market Account & Certificates of Deposit
I’ve read (or heard) about these kinds of accounts and strategies for using them, but I can’t say I know enough yet to determine if they’d be right for us.