The common advice is to keep six months of expenses in cash for emergencies. For my family, that’s about $9,000/month, or $54,000 for six months. That’s a significant chunk of our assets to park in a high-yield savings account (currently at 3.9%).
I already have the full amount saved in a HYSA, but I’m wondering if it’s necessary for all of it to be in cash. Could some of it be allocated to relatively safe, liquid investments like inflation-protected securities, short-term bonds, or even a CD ladder to maximize returns while maintaining accessibility? Would love to hear your thoughts.
The point of an emergency fund is that it’s safe, liquid, and available when you need it. Investing it—even in something relatively safe—adds risk, which defeats the purpose. I personally keep 3 months in cash and another 3 in bonds, but I’m risk-tolerant and don’t have dependents.
You could ladder CDs to improve returns slightly while keeping funds accessible. For example, stagger 6-month, 1-year, and 2-year CDs to ensure cash flow if needed.
Having all 6 months in a HYSA may feel excessive, but consider this: a market downturn could coincide with job loss, making it harder to liquidate investments without taking a loss. Cash gives you peace of mind.
Remember that an emergency fund doesn’t need to cover your current lifestyle. In a true emergency, you’d cut unnecessary expenses and only cover necessities like housing, utilities, and food.
Short-term bonds or money market funds can be a good middle ground. They’re low risk and offer better returns than a HYSA, but keep some cash for immediate access.
Think of your emergency fund as financial insurance. You don’t buy insurance hoping to get a return; you buy it for protection. Keep it in cash or cash equivalents for true emergencies.
Emergency funds are not investments. Keep them safe, accessible, and in cash or equivalent. Gambling with them could jeopardize your family’s security.