4 Reasons to Keep Your Emergency Fund in a High-Yield Savings Account

You'll want to make smart choices about what to do with your savings.

Saving money for emergencies is extremely important to build financial security. Without an emergency fund, you could end up turning to credit cards or other types of debt when surprise expenses creep up.

You'll want to be sure you have plenty of money in your emergency fund in order to be prepared for the unexpected. Ideally, this will mean you have three to six months of living expenses saved up. But you'll also want to make sure you put your savings in the correct account.

For most people, a high-yield savings account is the best place for emergency money. Here are four reasons why.

1. To earn extra interest

If you have the recommended three to six months of living expenses in your emergency fund, it means you have several thousand dollars invested. With so much money in your account, the interest rate you're paid on your balance can make a big difference.

Most checking accounts and traditional savings accounts pay little or no interest so your money will just sit in the account losing ground due to inflation. If you opt for a high-yield savings account, you'll maximize the money your emergency savings earns while it's sitting waiting for you to use it. These extra funds you get paid from your savings account can help to increase the amount you have invested for unexpected expenses.

2. To keep the money separate from your bank account

You don't want your emergency savings in your regular checking account because it's important to keep this money separate. Otherwise, you could end up spending it inadvertently for reasons other than emergencies. This could be a huge financial disaster if the money has been frittered away on everyday expenses and you don't have it available when you need it.

If the money is in a separate high-yield savings account, you'll know it's earmarked for emergencies and you'll be less likely to use it for other things.

3. To make it easier to keep track of the funds

Keeping your money in a separate high-yield savings account allows you to easily keep track of exactly how much you have invested for emergencies at all times. This can be especially helpful when you're in the process of working on building your emergency fund.

If you're still in the process of saving several months of living expenses, you can also set up automated transfers of money to your emergency fund account each month. You can monitor your progress as the fund grows so you can ensure you're on track to saving the recommended amount ASAP.

4. To ensure you can access your emergency savings when you need it

Finally, you'll want to opt for a high-yield savings account for your emergency fund, rather than investing it in other assets such as stocks, bonds or CDs, because then your money is accessible when you need it. You won't risk facing losses or having to sell investments at an inopportune time, and you will be easily and quickly able to access your emergency money when unexpected expenses arise.

For all of these reasons, you should seriously consider opening a high-yield savings account for your emergency money ASAP if you don't already have one.