Here's Why I Keep My Emergency Fund in a High-Yield Savings Account

Maintaining an emergency fund is important to me. I don't want to put surprise expenses on a credit card if something unexpected happens. To ensure I don't find myself in that position, I have an emergency fund with six months of living expenses. 

My emergency fund is not in my regular checking account. Instead, I keep the money in a high-yield savings account. There are three reasons why I have made that choice. 

My money is safe

The most important reason why I keep my money in a high-yield savings account is because I can count on the money to be safe. My account balance is well below the FDIC-insured limit of $250,000 since I am only keeping the money I need in there for emergencies. This means there is essentially no risk of loss, since if the bank fails, I'd still get my money back. 

If I were to invest my money, I'd risk losing some of it if my investments performed poorly. I might also be reluctant to take out my money during a stock market downturn, as I wouldn't want to "sell low" when the prices of my investments were down. Unfortunately, a downturn might be the exact time I would need the money if the economy went south and my income and investments both took a hit. 

I can't take a chance on not having all the money I saved for emergencies, or not being able to access it, so the money stays in my high-yield savings account where it's ready in case something goes wrong.

My money is accessible -- but not too accessible 

I want to keep my emergency money in a savings account where I can access it -- but I don't want the funds to be too accessible so I'd be tempted to use them for expenses that weren't truly an emergency.

By keeping my emergency savings in a high-yield savings account that is separate from the bank where I have my checking account, I have to jump through some added hoops to get ahold of my emergency money. It only takes a little extra work -- namely, signing into my account and transferring the funds over -- but these extra steps are enough to give me time to make sure I'm really thinking through whether the expense is a true emergency.

I can earn a little bit of interest on my emergency funds

Finally, I keep my money in a high-yield savings account because I figure I may as well earn as much interest as I can on the thousands of dollars I have sitting in the account. My account is currently paying me about 4% APY, which means for each $1,000 I have in the account, I earn about $40 in interest a year. That's not a lot of money, but it's not nothing -- and it's better than leaving the money in a traditional savings account that would pay much less.

For all of these reasons, I believe a high-yield savings account is the best place for emergency money. Anyone who isn't sure where their emergency fund should be may want to research their savings account options to find one that meets their needs.