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5 Places to Stash Your Cash For Emergencies

Barbara Marquand | guest writer for GoTalkMoney

There are two keys to creating an emergency savings fund to tide you over in case you lose your job, get hit with medical bills, or face some other unexpected yet vital expense.

One, you need to set aside enough cash. Financial experts recommend saving at least three to six months of living expenses. If you're not there yet, set aside some cash each month to build toward the goal.

And two, you need an account or investment vehicle that provides some earnings yet gives you quick and easy access to your money. Here are five places to consider parking your emergency savings:

1. Online High-Yield Savings Account

Online banks today typically offer higher interest rates than many traditional brick-and-mortar branches. Search online to find the best yields, and open an account. Many online savings accounts have no minimum deposit requirements or fees, and all you have to do to get the account started is provide the routing and account number of another bank account that allows electronic transfers. Set up monthly automatic transfers from a checking to your savings account to continue building your emergency fund.

2. Money Market Account

Money market deposit accounts traditionally have offered better yields than other savings accounts. With money market accounts, you can write a limited number of checks or make ATM withdrawals. (All savings accounts are limited to no more than six withdrawals per month under federal regulations.) Like other deposit bank accounts, money market accounts are insured by the FDIC, so your investment is safe as long as you keep deposits under $250,000 per financial institution. (The coverage limit drops to $100,000 per person per bank in 2014.)

3. Money Market Fund

Money market funds are very similar to money market deposit accounts. They often are supplied by the same banks that offer money market deposit accounts, and they provide the same types of benefits. However, money market funds, unlike interest-bearing money market accounts, are actually mutual funds that invest in short-term, fixed-income investments, such as government securities. They are not insured by the FDIC, but they are considered very low risk. Still, it pays to choose funds carefully.

4. CDs

CDs are less liquid than savings and money market accounts, because you lose some of your interest earnings if you withdraw money before a CD has matured. Investing all your emergency savings into one CD would be unwise because you'd have to suffer the interest penalty unless your emergency coincided with the maturity date. And when does life ever deliver a perfectly timed emergency?

Don't count CDs out, though, for emergency funds. Build a CD ladder by investing in multiple CDs with different maturity dates. A 12-rung ladder with a CD maturing each month would provide monthly income for a full year. Each time the CD matures, simply reinvest. Look for the best CD rates online, and make sure you understand the terms of the CDs before investing.

5. Treasury Bills

Consider investing in U.S. Treasury Bills, or T-bills, which are issued with terms of four, 13, 26 or 52 weeks and are auctioned on a regular schedule. Bills are sold at a discount rate of the face value. So you might pay $990 for a $1,000 T-bill and then get the full $1,000 when the bill matures. You can buy bills from the U.S. Treasury Department on its TreasuryDirect Web site through non-competitive bidding or through banks and brokers through either competitive or non-competitive bidding. Stagger the maturity dates of T-bills to provide regular cash flow in case of emergency.

You don't have to choose just one investment vehicle for your emergency savings. You can use a combination of savings and money market accounts, CDs and T-bills to provide a safety cushion and well-earned peace of mind.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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