How to store your emergency funds

Building up an emergency fund is one of the smartest steps you can take to ensure your financial and overall well-being. Emergency funds are liquid funds that you can tap into when times get tough. Maybe you need to pay for an expensive automotive repair, or perhaps the fridge dies. If you suddenly have an expensive and unavoidable bill to pay, an emergency fund can come to the rescue.

But where do you store those funds? Here are three considerations for your emergency fund:

•  Your funds should be easy to access. In the parlance of finance, they should be liquid — funds you can get today if you must.
•  But not too easy to access. You should have to take an extra step and think about it for a minute. You should keep those funds where you can easily forget them but still remember them in an emergency.
• They should also be safe. You don’t want to risk your emergency funds.
• They should prevent you from falling into debt.

With those requirements in mind, it’s easy to eliminate stocks and credit cards as an emergency money source. While stocks can be a very good investment, giving you a lot of return, they also can go down. While some financial experts argue that some portion of a large emergency fund should be in stocks, if your fund is less than $10,000, don’t risk your money.

Credit cards don’t work because they add debt. The whole idea of an emergency fund is to prevent a spiral into debt. You might be able to handle one small financial emergency on a card, but if a second emergency follows, you end up servicing debt rather than saving money.

That leaves savings accounts. They allow you to make regular deposits, and they are safe.

You want to keep your emergency fund separate from your regular savings and checking accounts, making it easier to track your finances. Once a month or so, you can simply take a peek at your account to reassure yourself that the funds are there and will be there when needed.

Choose a separate credit union or bank for your emergency fund. Another choice is a high-yield online savings account. Those accounts usually have a higher interest rate than traditional banks.