It's always a good idea to keep some money set aside in a liquid form, but it's a double-edged sword, because the more liquid your money, the less it's earning. If you never have an emergency, then you can miss out on the chance for substantial earnings by keeping that money in a simple savings account.
For more aggressive growth without losing the liquidity, you can consider a money market account or a high-yield savings account. A high-yield savings account may require you to maintain a certain minimum monthly balance.

If you are concerned about liquidity but don't feel like you need your money all in cash, you can also consider bond or certificate of deposit (CD) ladders. When you create a ladder of bonds or CDs, you invest in instruments with varying maturity dates so that you regularly have funds converting to liquid cash while also taking advantage of the higher returns that these instruments offer.

Mutual funds and money market funds are another option, but these generally require liquidation and three days or so to settle and make the funds available.

It's one thing to keep a few hundred dollars sitting in an emergency savings account with a very low interest rate, but if your emergency account has several months' worth of expenses, then you might consider mixing and matching many different instruments so that your savings are still accessible (possibly on a graduated timeline), you avoid penalties for withdrawal and you maximize the growth opportunities available.

  1. Can mutual funds outperform savings accounts?

    A mutual fund can – and should – outperform a savings account. In most cases, it should not even be a close race. Savings ... Read Full Answer >>
  2. How can I cancel a bank draft that I have purchased?

    It is not commonly possible to cancel or stop payment on a bank draft since it, in effect, represents a transaction that ... Read Full Answer >>
  3. How does a bank determine what my discretionary income is when making a loan decision?

    Discretionary income is the money left over from your gross income each month after taking out taxes and paying for necessities. ... Read Full Answer >>
  4. For what types of accounts are demand deposits available?

    There are essentially three types of accounts available as demand deposits: checking accounts, savings accounts and money ... Read Full Answer >>
  5. What proportion of my income should I put into my demand deposit account?

    Generally speaking, aim to keep between two months and six months worth of your fixed expenses in your demand deposit accounts. ... Read Full Answer >>
  6. What net interest margin is typical for a bank?

    In the United States, the average net interest margin for banks was 3.03% in the first quarter of 2015. However, this was ... Read Full Answer >>
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