You’ve Got an Emergency Fund — Now What?

Congrats! You’ve followed the suggestions you’ve seen all over the web and built up an emergency fund. But now what do you do with it?

If you’re like me, this may be the first time you’ve had a pile of cash just sitting there. It may feel like you should “do something” with it, but…don’t. (Unless you’ve stashed it under your mattress or something, in which case: put at least most of it in an FDIC-insured bank or an NCUA-protected credit union.)

First things first

You’ve got to protect your emergency fund from yourself, first of all. Clearly define what will constitute an emergency. In my case, that’s job loss or someone needing to be hospitalized if I can’t pay for that out of pocket first. That’s it. Nothing else counts as an emergency. So with luck, my fund will continue to sit there untouched for a long, long time.

Your definition may be different, of course, but make sure that you have one and that you stick with it. Otherwise, it can be tempting to decide that things like a new couch are an emergency. (And they’re not; not even if the cat scratches the heck out of your old one.)

Keep it safe

Once you’ve kept your emergency fund safe from your own fingers, it’s time to keep it safe from loss. Don’t try to make money from it. You want to keep it in a form that’s as close to no risk as possible.

Don’t invest it. Don’t use it for a down payment on your house, thinking you can pull out equity if an emergency happens. Don’t lend it to your cousin who promises to pay you 8% interest.

Don’t get greedy. Just keep it safe, in the bank. For an emergency fund, it’s not about making money, it’s about keeping money. Untouched, for as long as possible.

My emergency money

I have anywhere between 9 months and 18 month’s worth of expenses set aside in my emergency fund, depending on whether we’re talking bare-minimum expenses or what I really normally spend. I have some of mine in just a plain old online savings account, where it’s easily accessible, and then I have some in laddered CDs that come up for renewal at different points.

I’m not so sure having the laddered CDs was the way to go, either. But my though there was that the savings account would be for immediate emergencies, and the CDs for longer term ones like being out of work for a long period. (Since they come due at different times, I could just start not renewing them if I was in the midst of an emergency to avoid penalties.)

But that only works if your emergency fund is strictly for things like job loss — and most people’s aren’t.


The main thing is not to try to make money with your emergency fund; but just to have the money available. (And then hope you never have to use it.) You’re doing the right thing by keeping it safe.


  • What a great suggestion about CD ladders. Thanks!

  • Laughing

    “The main thing is to not try to make money with your emergency fund; but just to have the money available”.

    Then why would you lock it away in CDs; and then write about it in a blog post contradicting the point?

    • If you’ve looked at CD rates lately, it should be apparent that I’m not trying to make money from it. I’m doing the tiniest hedge against inflation, but only with some of the money. It IS all available at any time. I wouldn’t necessarily have to pay penalties either (which would be ridiculously small anyway because the penalties are 3 months’ interest) if I needed to tap into the part that was in CDs — unless I needed my entire emergency fund at once. I can’t think of anything I’d need that amount of money for in a single month — since my defined emergencies are job loss and a medical deductible. I could be wrong, though.

  • Great advice. The CD ladder is nice option for the extra interest (however small, it’s still more), especially when you have your fund planned for a possible 9-18 months. It’s all about preserving that capital.

  • I have been wondering about this for a while now. My efund is not at the amount I want it at but it seems kind of silly to have it all just sitting in a bank account kind of doing nothing.

  • Laddered CDs does sound like a good idea I think after you have the insurance of a an emergency fund that should lead you to start aggressively saving for retirement.

  • Jackie,

    If someone has an emergency fund in excess of 12 months, my personal belief is that they can be a “little” risky. I don’t mean personal loans, but perhaps paying off a small bill (if they have one), then replenishing the fund at the same rate or greater, They will either save interest, or make more interest by paying themselves the interest.

    Additionally, putting the long term emergency funds in the right kind of a whole life policy, can be a big win as well. It will give a motivation to pay the emergency fund back without the pressure of making payments. I am a big advocate of Infinite Banking, so that’s where that strategy comes from.

    Best wishes,

    • Hm, while I agree that a small risk might be ok for extensive emergency funds, I’m a firm believer in the idea of only using an emergency fund for clearly defined emergencies.

  • I like the CD suggestion too. This is the first time in my life where I finally have my 8-month emergency fund fully funded (I use an 8-month figure b/c Suze Orman has imprinted that # in my mind). We’ve been trying to decide what to do with our monthly savings next and we are debating either a safe strategy of cd’s/dividend paying stocks/etc. and a more riskier strategy of buying a property here in town to rent out….

  • Hm, I wouldn’t call stocks of any kind an emergency-fund-level of safe. But if it’s non-emergency fund money you can stand to lose, riskier options could make sense.

  • “Protect your emergency fund from yourself” – so true! We are our own worst enemies sometimes.