Why Dave Ramsey Doesn't Think Your Emergency Fund Should Be in a Savings Account

Should you listen to Ramsey about where to invest your emergency money?

Saving up an emergency fund is crucial if you want to be financially secure. Everyone faces unexpected expenses or a surprise income reduction at some time during their lifetime. If you don't have an emergency fund available to help you cope in this situation, you could end up in credit card debt that’s hard to escape. 

You should ideally have around three to six months of money saved for emergencies, which means you'll need to have quite a lot of money set aside that you’ll be able to access quickly. You'll want to pick the right account to keep this cash in -- and finance expert Dave Ramsey has shared his opinion on what type of account that should be. 

Surprisingly, it's not a savings account. 

Here's where Dave Ramsey thinks you should invest your emergency fund 

Ramsey recommends putting your money not into a savings account, but instead into a money market account. 

"Most money market accounts will give you a debit card and checks to use -- that way, you can get to your money when you really need to (keeping it ‘liquid’)," the Ramsey Solutions blog states. 

Ramsey recommends a money market account not because the account will pay you a higher rate of interest, even though that is often the case. "Don’t worry about how much interest the account earns -- your emergency fund isn’t an investment," he explains. "That money isn’t there to make you money. It’s there to act as a safety net when an emergency actually hits."

Instead, he believes a money market account is the right place to invest because your cash is more quickly and easily accessible in this type of account. Many savings accounts do not offer debit cards or checks, instead requiring you to transfer your money into checking to get it out. This can take time when you need your funds the most during an emergency. 

Some savings accounts also limit you to six withdrawals per month. This used to be a federal requirement, but Regulation D was lifted and it no longer is. Still, not all banks have lifted the cap on withdrawals. Money market accounts typically don't have this type of restriction, so you can access money more easily when you need it. 

Is Ramsey right?

Both savings accounts and money market accounts allow you to earn interest and are FDIC insured with most banks, so there's not a huge distinction between them. 

In general, money market accounts have the advantage of offering a higher interest rate and more access to your cash. So if you can find a money market account with a financial institution that you like, then there's no downside to listening to Ramsey. 

However, some money market accounts have higher minimum balance requirements than savings accounts. If you can't meet these requirements and would end up getting hit with fees, then a standard savings account would be a better bet.

Ultimately, neither choice is the wrong one, but the best option for you will depend on your own unique situation, so you should consider both options when deciding where to put your emergency savings.