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 a Flexible Spending Account (FSA) be used for Lasik?

    The owner of a Flexible Spending Account (FSA) can use money from the account on various eye surgery procedures, including ... Read Full Answer >>
  2. Can a Flexible Spending Account (FSA) be used for a gym membership?

    The U.S. Internal Revenue Service (IRS) typically does not allow funds from a Flexible Spending Account (FSA) to be used ... Read Full Answer >>
  3. Can a Flexible Spending Account (FSA) be used for dental procedures?

    The U.S. Internal Revenue Service (IRS) allows funds from a Flexible Spending Account (FSA) to be used for qualified medical ... Read Full Answer >>
  4. What do states do with unclaimed property?

    Unclaimed property refers to personal accounts in financial institutions or companies that have had no activity and whose ... Read Full Answer >>
  5. How long does a stock account have to be dormant before it can be escheated?

    A stock account is typically considered dormant and eligible for escheatment after five years of inactivity; however, this ... Read Full Answer >>
  6. Do banks have working capital?

    The concept of working capital does not apply to banks since financial institutions do not have typical current assets and ... Read Full Answer >>
Related Articles
  1. Savings

    Top 5 Reasons Banks Won't Cash Your Check

    Learn the top reasons that a bank won't cash your check, and find out what steps you can take to prevent those scenarios from happening.
  2. Savings

    How Parents Can Help Adult Children Buy a Home

    Owning a home isn't easy thanks to stringent lending standards. Thankfully, there's ways parents can help their kids buy a home.
  3. Savings

    How Americans Can Open a Bank Account In Thailand

    Have your paperwork in order and be sure to shop around.
  4. Wealth Management

    How To Open And Access An Offshore Bank Account

    Opening an offshore bank account does not require a high level of financial sophistication. It’s a lot like opening an account at your neighborhood bank.
  5. Credit & Loans

    Banks Can Notarize Your Documents for Free

    Learn how you can obtain the services of a notary public for free at your local bank branch, along with other places where you can have a document notarized.
  6. Retirement

    5 Reasons You Should Take Advantage of 401(k) Catch-ups

    Most Americans don't have a enough saved for retirement, but when they turn 50, they have a second chance thanks to the 401(k) catch-up provision.
  7. Professionals

    Top Ways to Reduce Money Friction in Your Marriage

    Bickering about family financials can get messy. Here are some ways to help resolve money issues and get on the same page financially with a spouse.
  8. Savings

    4 Ways to Ditch Bank Overdraft Fees

    At $35 a pop, overdraft fees can mount up quickly. Here are 4 different strategies for avoiding them.
  9. Economics

    What is the Cost of Funds?

    Cost of funds is the interest cost financial institutions pay to use the funds they deploy in their business.
  10. Savings

    Try These Ways to Reduce Your Bank Fees

    The tables have turned on consumers: Not only are bank account interest rates measly, but fees can take a serious bite out your balance. Here's what to do.
  1. Credit Union

    Member-owned financial co-operative. These institutions are created ...
  2. Check

    A written, dated and signed instrument that contains an unconditional ...
  3. Bank Deposits

    Money placed into a banking institution for safekeeping. Bank ...
  4. Cost Of Funds

    The interest rate paid by financial institutions for the funds ...
  5. Linked Transfer Account

    Accounts held by an individual at a financial institution that ...
  6. Conjoined Account

    An account that has more than one account holder.

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center