Outside the Box: What’s the safest place for retirees to keep an emergency fund?



Consider it the money that keeps you safe.




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plummeted, emergency funds would have been especially valuable.


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He and others recommend having two separate funds in place:

  • An account that is fairly liquid for unexpected expenses that are short term such as an appliance or vehicle repair. This is often known as a rainy-day fund.
  • A second fund with relatively good liquidity with some of the funds at a higher yield for larger, unexpected expenses, such as job loss or a new roof on your home. This is known as an emergency fund.

“If you have an emergency fund and a rainy-day fund, you’re “not relying on your market investments,” Sieminski says. “Having some money set aside not in the market, it’s your safety valve.”

The national average interest on a savings account is 0.06%, according to Bankrate. High-yield savings accounts vary in annual percentage yield (APY), minimum amount required, and the way the interest is compounded but can have an APY of as high as 0.40%, 0.55%, even 0.65%. Check or

Annual percentage rate (APR) is different from APY in that the APY figures in compound interest while APR does not. According to the Federal Deposit Insurance Corporation (FDIC), the annual percentage yield “measures the total amount of interest paid on an account based on the interest rate and the frequency of compounding.”

Compound interest is interest paid on previous interest and considers how often it is compounded. Is it daily, monthly, quarterly or simply annually? The more frequently the interested is compounded, the faster your money can grow.

High-yield savings accounts typically provide flexibility yet each financial institution — whether a brick-and-mortar bank, an online bank or a credit union — offers different rates with its own terms. 

Here are some questions to ask before moving forward:

  • Is the rate an introductory offer?
  • What is the minimum balance required?
  • What is the APY?
  • How is the interest compounded?
  • Is check writing included?
  • What fees, if any, are associated with the account, such as using an ATM?
  • How do you put money into the account and how do you withdraw it?
  • Is the account insured?

Most high-yield savings accounts are insured, either by the FDIC or National Credit Union Administration up to $250,000.

For those who are willing to take a little more risk, experts suggest a short-term fixed income fund. Any of the major brokerages offer them. “You will get more yield from the bond fund than from the high-yield savings account,” Lee says. It can be an exchange-traded fund (ETF) or a mutual fund, he says. For example, the rainy-day fund can be in a high-yield savings account while part of your emergency fund can be in a short-term fixed income fund, a simple bond fund. Some short-term bond funds pay a dividend as well.

Another important point to consider is how you will replenish your rainy-day and emergency funds if you end up depleting some of the money when an unforeseen situation arises. Will you replace funds through income such as from a paycheck or business you own or, if you’ve claimed your Social Security retirement benefits, will you replenish from that income? Or, will you keep your portfolio sufficiently balanced so that you can use money from a short-term bond fund to replenish the rainy-day and/or emergency fund? Some people will sell some investments at a profit and pay capital-gains tax.

“You would want to have some fixed income” in your portfolio, Feldman says. “You might have too much cash or not enough cash. Keep your assets in balance in case the market goes down 20%.” 

Harriet Edleson is the author of “12 Ways to Retire on Less: Planning an Affordable Future” (Rowman & Littlefield). A former staff writer/editor/producer for AARP, she writes for The Washington Post Real Estate section.

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