2 Rules About Emergency Funds
Are you trying to “maximize” your emergency funds?
Why?
In this video, we explain why a high-yield savings account is still one of the best places to keep your emergency savings — even as interest rates fluctuate in 2025. Short-term interest rates, Federal Reserve policy, and market trends impact what your high-yield savings account earns. This still may be a smarter alternative than traditional bank savings accounts.
There are only 2 rules about emergency funds you need to remember.
Topics:
- Why your high-yield savings account rate changes
- How Federal Reserve rate cuts impact savings
- The importance of emergency funds in financial planning
- Better to maximize the purpose of your money
- Strategies for financial stability and peace of mind in retirement
2 Rules About Emergency Funds – Links
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2 Rules About Emergency Funds – Transcript
The 2 Rules About Emergency Funds
We’d meet with people in 2019, 2020, 2021, and tell them they should consider using a high yield savings account as a place for their emergency funds. We would tell them, “you may very well get more than what the bank is offering on savings accounts.”
People would be like, “Wow! I hadn’t considered that!”
Then we’d meet with people in 2022 and 2023 — when interest rates were moving up, and we’d suggest “you may want to consider using a high yield savings account as an alternative for your emergency funds.
Adding, “it’s quite possible you may be earning (at that time) something in the high threes or even low fours.”
“Wow! I I hadn’t considered that!”
Then we meet with people in 2024 and even this year, and suggest they “may want to consider using a high yield savings account, as an alternative to the bank – for their emergency funds.
And we’d hear “Okay, but the high yield savings account is now only paying something like three and a quarter …or three and a half percent.
Something must be wrong with my high yield savings account”
There’s nothing wrong with your high yield savings account.
The rate is going to float, and it’s going to depend on what’s happening with short-term interest rates. If the Federal Reserve is lowering short-term interest rates, you should expect that the rate on all savings options are going to be dropping.
A high yield savings account is still likely paying more than what you’d find at the bank, but it’s going to fluctuate.
We run into folks who will often say they’re interested in trying to “maximize” their money.
What they should be looking at …or looking for… is how can they “maximize the PURPOSE” of this money?
The purpose behind having three to six months of expenses — or more — socked away in an emergency account, a little bit out of your reach, is to tap into this ONLY when it’s an emergency.
And you don’t want to have to worry about whether you’re going to have a penalty to tap into this money — or take a hit if the stock market is down when that emergency happens.
So when it comes to emergency funds, there’s really two rules.
The first rule is to have one, emergency funds.
There’s a lot of people walking around today who don’t even have one.
The second rule is to make certain that you can tap into this fund at any time, meaning the money is not at risk and it can be accessed without a penalty or a cost.
Keeping it at a different bank or an online high yield savings account makes it a little less accessible.
Remember, an emergency funds are for emergencies only.
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