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I'm working on building up my emergency fund. I put the money into an Ally online savings account yielding 1% interest.

Would it be wise to put the money somewhere else that gives a higher rate of return?

Or not? seeing as this is an emergency fund and its purpose is fast access.

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    This question has been asked/answered a few times. Is there anything different for you? (Country perhaps?) The "Related" section on the right of this question shows at least 4 questions that are the same, but may related to specific countries. – BobbyScon Jun 28 '16 at 18:37
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I have mine at Ally also. I've been transitioning about 75% of it in to a ladder of 18x 18 month CDs rather than leaving it in the regular savings. The early withdrawal penalty is so low, at just a portion of accrued interest, that the funds are essentially liquid. It was the safest way I could find an additional 0.25%.

Additionally, Ally gives a rate bump when you renew a CD. The bump is currently 0.05% but it's been as high as 0.25%. When I was building the ladder I started by buying 6, 9, 12, 18 month CDs every month, so the shorter duration CDs would generate the renewal bump on renewal.

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Another option if you want a higher return is to tier your emergency fund so you are putting a portion in different savings vehicles, each with varying risk and rates of return. One option might be

  • 33% Bank Savings
  • 33% Bank CD
  • 33% I-bonds

You will need to assess the risk of these vehicles to see if it fits within your tolerance. If not, just using the online savings account is a fine choice.

One final note regarding I-bonds - they can't be cashed out until 1 year after you buy them. This may be too limiting to some depending on their perceived need for their emergency fund over the next year; others may be more comfortable with it.

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It depends on how immediately you think you'll need your emergency fund cash:

If you anticipate running into problems where you need cash right away (e.g. you live paycheck to paycheck, and your car breaks down a lot), put it into a checking or money market account.

If you don't think your emergencies will require immediate access to cash (e.g. unemployment), then put it in a savings account or CD.

If there is a lot of money in your accounts that goes unused, and you want a bigger safety net, then consider investing it. Though it's generally a better idea to pay off debts at this point.

I think the best idea is to split your emergency fund between your checking and savings. Maybe 20% checking and 80% savings. That way, you have some extra cash on hand when you need it, while most of your money is growing in savings.

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