A:

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.

RELATED FAQS
  1. How much money should I have in a savings account?

    Read a brief outline of the purpose of savings accounts, emergency funds and how to determine how much money to store for ... Read Answer >>
  2. I want to invest my emergency fund to earn interest. What is a relatively safe and ...

    When considering where to put your emergency money, a key consideration is making sure you'll be able to access the money ... Read Answer >>
Related Articles
  1. Personal Finance

    The 7 Best Places To Put Your Savings

    You work hard to put your money away for the future, but where you should you keep it?
  2. Retirement

    How To Start Saving For Retirement

    If you establish these money-saving habits and patiently allow your wealth to build, you will be taking some huge steps forward in making your financial future more secure.
  3. Personal Finance

    Why An Emergency Fund Is Important

    Emergency funds are vital in case you lose your job or perhaps have an expensive medical emergency, but why do so few people have emergency funds?
  4. Personal Finance

    Why You Absolutely Need an Emergency Fund

    What is an emergency fund, and why is it often the first component of sound financial planning?
  5. Financial Advisor

    Why Cash is King When Markets are Volatile

    After the past several years, you might be addicted to equity. But when markets turn volatile, cash is the best option. Here's why.
  6. Personal Finance

    4 Savings Accounts for Investors

    Curious about the best saving accounts and which ones suit investors?
  7. Investing

    10 Ways To Prepare For A Personal Financial Crisis

    Life is unpredictable, but if there's anything you can do to stave off disaster, it's to be prepared and be careful.
  8. Personal Finance

    Best Ways to Grow Your Savings Accounts

    Creating a savings plan is key to building a solid financial foundation. Here's how to do it.
  9. Personal Finance

    Find the Best Savings Account Rates

    You know how to spot the highest interest rate, but how do you really get the best deal on savings accounts?
  10. Managing Wealth

    Money Market Rates: Finding the Best Accounts in 2016

    This helpful rate calculator quickly shows you where to find the highest interest rate on a money market account.
RELATED TERMS
  1. Savings Account

    A deposit account held at a bank or other financial institution ...
  2. Emergency Fund

    An account that is used to set aside funds to be used in an emergency, ...
  3. Retirement Money Market Account

    A money market account that an individual holds within a retirement ...
  4. Near Money

    An economics term describing non-cash assets that are highly ...
  5. Core Liquidity

    Cash and other financial assets that banks possess that can easily ...
  6. Money Market Account

    An interest-bearing account that typically pays a higher interest ...
Trading Center