3 Places You Should Never Keep Your Emergency Savings Fund

If your water heater explodes or your car's transmission dies, your emergency fund is your safety net. It's a stash of $5,000 or more that can solve money problems fast.

But where you keep that cash matters just as much as how much you save. A good emergency fund should be safe, easy to access, and ideally earning some interest while it waits.

Here are three places you definitely don't want to keep it (and two you should).

1. Under your mattress

My grandpa used to stash rainy day money in a coffee can under the sink. And sure, keeping a little emergency cash at home can still be handy today. I keep a few $100s and some small bills at home for convenience.

But holding thousands of dollars in your house? That's not a smart long-term move.

Cash at home earns zero interest, it's not insured, and it's way too easy to "borrow" from when you're tempted. Worst case, a flood, fire, or break-in could wipe it out completely.

2. In your day-to-day checking account

The problem with mingling your savings and daily spending money is twofold:

First, looking at a large checking balance every time you log into your banking app messes with your mind. It makes you feel flush, even when that money's supposed to be off-limits. The temptation to spend is too much for most people to resist.

And second, checking accounts earn practically nothing in interest. Typical big bank checking accounts pay 0.01% APY. If your emergency fund is $10,000, you're earning… $1 over the course of a year. While inflation eats away at the real value.

High-yield savings accounts (HYSAs) are a much better spot for your emergency fund. Compare top-paying savings account options here with APYs of 4.00%+ still available.

3. Invested in stocks or crypto

It's tempting to invest your emergency fund, hoping to squeeze out some extra growth.

But what happens if the market is down when you need to grab your cash suddenly? Imagine you've got $5,000 in an S&P 500 ETF, and your furnace dies mid-winter. If the market's down 20%, you'd be forced to sell at a loss just to get warm.

Crypto is even more volatile and risky. It can double overnight… or crash just as fast.

So, where should you keep your emergency fund?

Here are two solid options that check all the boxes: safe, liquid, and earning interest.

1. A high-yield savings account (HYSA)

These are just like regular savings accounts but they pay way more interest -- some offering over 4.00% APY right now.

The best HYSAs are typically offered by online banks, which typically have no fees, FDIC insurance up to $250,000, and allow quick money transfers to/from your checking account.