How to Invest Your Emergency Fund for Liquidity

Strategies for keeping emergency funds accessible while earning returns

An emergency fund can help you stay on good financial footing when you face unexpected costs like medical bills or car repairs. But if you want to invest these funds so that they earn money, you'll also want to ensure you can access them quickly and easily so that you can use them for emergency expenses.

Liquid assets like money market accounts, high-yield savings accounts, and CDs are among the ways you can invest your emergency fund money so that it can grow and remain accessible. Learn more about your options for investing emergency funds.

Key Takeaways:

  • An emergency fund should ideally be enough to cover three to six months' worth of necessary expenses.
  • Emergency funds should be easily accessible so that you can use them to cover unexpected expenses.
  • You can invest emergency funds in more liquid assets so that you can earn money and convert the assets into cash quickly.
  • Consider avoiding more volatile investments with emergency funds because you may be forced to sell at a loss when you need the money.

Benefits of Liquidity for Emergency Funds

When considering investment options for your emergency fund money, aim for assets that are more liquid, or ones that you can convert into cash quickly and easily without a withdrawal penalty.

Emergency funds that are easily accessible will ensure you can use the money when you need it. You can keep your money in a checking account or savings account, so you can pay for an emergency expense immediately. But there are ways to invest emergency funds so that they can earn returns.

If you invest in less liquid assets like real estate, it can take time to access the cash. You may not be able to sell non-liquid assets quickly enough to pay for an emergency expense. You may have to sell at a loss or incur penalties to access your money.

Most financial professionals recommend that you avoid investing your emergency fund in stocks because they are fairly volatile. So, if you need to sell your stocks to use the money for an emergency expense, you may be forced to sell at a loss. Bonds are generally less volatile than stocks, but they may take time to sell.

Let's look in more detail at ways you can invest your emergency fund for safety, liquidity, and returns.

Ways to Invest Emergency Funds

Keeping your emergency fund in a traditional checking or savings account can be an ideal way to protect your money so it will be there when you need it.

However, if you want to try to earn returns, which can help prevent losses due to inflation, you can consider other investment choices like a money market account, high-yield savings account, or CD.


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Money Market Accounts

Money market accounts are interest-bearing accounts at banks or credit unions that are a sort of mix between a checking account and a savings account. They are considered low risk so they can be ideal for an emergency fund. Money market accounts can provide APYs of about 3% to 4%.

Most money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA), which means your money will be protected up to $250,000 per account.

Some banks offer money market accounts that come with debit card and/or check-writing privileges, which gives you instant access to your funds. You often can make a certain number of free withdrawals per month as well.

High-Yield Savings Accounts

A high-yield savings account, often offered through online banks, can also provide returns while keeping your emergency fund safe.

These accounts generally provide higher interest rates than traditional savings accounts. You can earn 3% to 4% from many high-yield savings accounts compared to an average APY of about 0.3% from traditional savings accounts, according to the FDIC. Money in a high-yield savings account, including online-only accounts, is typically FDIC-insured.

You can usually access the money through an online funds transfer, outgoing wire transfer, telephone transfer, or check request.

Be aware that if you use an online-only account, you cannot access your funds at a branch location. Some methods of accessing emergency savings in an online-only account may take several days. 

Certificates of Deposit (CDs)

A certificate of deposit (CD) can also provide more interest than keeping your money in a checking account. Like a money market account and high-yield savings account, a CD offers FDIC protection for up to $250,000 per account.

Generally, CDs with longer maturities (such as five years) have higher interest rates. However, one drawback with keeping an emergency fund in a CD is that you usually must pay a penalty to cash out a CD before it matures, which makes it more difficult to access your money if you need it immediately.

For example, the early withdrawal penalty on a five-year CD might be six months’ worth of interest. If you cash out the CD before you have even earned six months’ worth of interest, the bank may take the penalty out of your principal.

Creating a CD ladder, where you buy several smaller CDs that mature at different intervals instead of one large CD, can help you increase liquidity and avoid or minimize early withdrawal penalties.

Some banks offer no-penalty CDs that let you withdraw your money without sacrificing any of the interest you have earned. You may earn a lower interest rate than you would with a regular CD, but your funds will be more liquid.

How Much of My Emergency Fund Should Be Liquid?

Financial advisors often recommend keeping at least three to six months' worth of expenses in cash in highly liquid assets so that you can use them in an emergency, although the amount will vary depending on your situation.

Is $10,000 Too Much for an Emergency Fund?

The more money you have in an emergency fund, the better protected you will be if you face unexpected expenses. The amount you need for an emergency fund will depend on your own personal circumstances and financial obligations. If you have $10,000 in monthly expenses, it likely won't be enough as financial advisors recommend you have from three to six months' worth of expenses in an emergency fund. However, if your monthly expenses are $2,000, a $10,000 emergency fund may be more than enough.

Can I Put My Emergency Fund in Stocks?

You can put some of your emergency fund in stocks to try to earn money if you have a significant amount saved. However, keep in mind that stocks are fairly volatile, so you may have to sell at a loss if you face an emergency expense. Also consider that selling stocks can typically take several days, so you won't be able to access the cash instantly. Consider keeping some of your emergency fund in a more liquid asset like a money market account.

The Bottom Line

Emergency fund money should be safe and easily accessible. So, if you want to invest these funds, aim for lower-risk investment choices.

For more guidance on how to invest your funds according to your personal situation and goals, consider consulting a professional financial advisor.

Article Sources
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  2. Vanguard. "Deciding Where to Put Emergency Funds."

  3. Synchrony Bank. "How Can I Access My Money?"

  4. Federal Deposit Insurance Corp. "National Rates and Rate Caps."

  5. Federal Deposit Insurance Corp. "Deposit Insurance FAQs."

  6. Marcus by Goldman Sachs. "No-Penalty CD."

  7. Consumer Financial Protection Bureau. "An Essential Guide to Building an Emergency Fund."

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The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.