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Keep Your Emergency Savings Fund Under Your Mattress?

What should you do with that emergency savings fund money you’ve been accumulating?

I don’t know. Why don’t you just keep it under your mattress? That’s probably the best idea.

(Cricket noise…)

April fools! (Sorry, just couldn’t resist.)

emergency savings fund under mattressNo, no, no…a thousand times NO! Please don’t keep your emergency savings fund money under your mattress. That’s one of the worst places to keep cash around the house. Under the mattress or the bed will be one of the first places a burglar looks for valuables.

Now there is nothing wrong with keeping cash around the house. You might need some for a spur of the moment issue. Banks aren’t always open and you might not be able to get to an ATM. But you don’t want to keep the emergency savings fund around the house.


Because we are talking about a large amount of money you’d be storing.

Now a beginning emergency savings fund is anywhere from $500 – $1,000. That’s a sizable amount but you might not be hesitant to keep that much at home. But what about a fully funded emergency fund? That’s a different story.

Most personal finance experts would agree that a fully funded emergency savings fund should be at least 3 months of expenses on the low end. Opinions vary on the high end – I’ve seen anywhere from 6 to 12 months of expenses. Given those ranges a typical family of four may be looking at $15,000 to $30,000 plus in their fully funded emergency savings fund.

Do you want that much cash lying around the house? I don’t either.

So where should it be put?

Emergency Savings Fund Money = Investments?

Before I share where to park your cash, I think it’s important to understand what an emergency savings fund is not. This will be crucial for you to understand and accept before I tell you where the cash should go.

An emergency savings fund is not an investment. It is not designed to be money that is put to risk seeking a financial return.

An emergency savings fund is insurance. It is insurance to protect us in case of a financial emergency.

We pay to have health insurance for medical issues and life insurance to assist our family when we die. Why should creating an insurance plan for day-to-day expenditures be any different?

For some reason this concept of an emergency savings fund being insurance doesn’t sit well with us. Our minds have been conditioned that if our money is either lying around or sitting in a low interest account that it is being wasted. Surely there are situations where I could get a higher rate of return on the $20,000 I have in cash.

Well, certainly there are – the stock market being one place. However, once you cross that line of putting money in the market and chasing returns it can no longer be considered emergency fund money. It’s investment money at that point, subject to all the ups and downs and risks that come with an in-flux market.

Plus, if the money is in the stock market it’s tougher to get to. We recently had a situation where a furnace went out during the winter. We needed it replaced that day. If my emergency fund money had been tied up in a stock market mutual fund or in a Certificate of Deposit (CD) at a local bank I couldn’t have accessed it that same day.

The emergency savings fund might not be bringing a financial return. But it is bringing you something of value. You will be receiving a peace-of-mind return.

What does that look like?

A peace-of-mind return is the calmness that comes with knowing you can write a check for the transmission and not have to put the expense on a credit card. It’s being put at ease knowing that even though you require knee surgery the doctor’s bill will be 100% paid for with cash. It’s how every emergency situation in your life becomes simply a hassle to work through instead of a stop-the-presses, freak-out ordeal.

The peace-of-mind return that comes with an emergency savings fund cannot be measured in percentages. But you won’t fully get it if you view the emergency fund as an investment. It’s insurance, plain and simple.

Where to Put My Emergency Savings Fund Money

With that said, there really is only one place I’d recommend putting your emergency savings fund money – in a money market account either at a local bank or in a high yield, online savings account (the latter being able to provide you with slightly higher interest rates). In those two places your money will be insured and you will have quick access to it when an emergency hits.

I know those don’t sound exciting. You will receive negligible interest, to the point that the rate of inflation may devalue the money you have saved in the account. For many it’s financial blasphemy to allow that to happen.

It really doesn’t bother me because a) I view this money as insurance and b) I have other investments that are kicking inflation’s tail.

But even if you have not reached the investment stage yet, I wouldn’t worry about it. Achieving financial freedom is a series of steps and the emergency savings fund is the most foundational one. Park the money in a bank somewhere and sleep easy at night knowing it will be there when you need it.

Questions: Do you view and emergency savings fund as insurance or as an investment? What have you done with your emergency savings fund? Where else could you park it where it wouldn’t be considered an investment? Besides cash, what other ways have you funded an emergency?

Image at FreeDigitalPhotos.net

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  1. We have a good chunk of our emergency fund in an online savings account. The rest we have invested in short-term bonds. This gives us a little higher return and is still relatively safe. The cash portion should cover us for most emergencies and in the even it doesn’t, we will put the cost on our credit card and pay it off by withdrawing the money from the short-term bonds.

  2. Jayson @ Monster Piggy Bank says

    In the mattress? I almost believed in you there Brian. HAHA! (Joke) I keep some of mine in savings account in spite of its low interest so that I can get it any time I want. And some are in some of types of investment where it grows “fruitfully”.

  3. I cannot tell you how many people wanted to take their money out of the their stock market during the great recession and bury it or put it under their mattress. Those were strange conversations. 🙂 And I couldn’t agree more and thank you for reminding your readers that an emergency fund IS NOT an investment. It’s purpose is NOT to create wealth for you but to protect you against emergencies and allow you to take advantage of unexpected opportunities too. Great post!

    • “… take their money out of the their stock market…” Fear will make you do some silly things. I’m glad we chose to ride that out and continue to invest. The money we put into the market during the recession has seen a great return. That wouldn’t have happened had we held onto our cash.

  4. I encourage clients to keep their emergency funds in secure bank accounts; however, once the funds get to a size where they don’t need to have quite as much insurance and don’t anticipate using them for a while, I encourage them to invest some (definitely not all) of it and let their money grow. The investments are not as risky as their retirement funds, but they are slightly more risky than the bank account.

  5. I think it’s so interesting that people have been in the habit of putting money under beds, in closets, etc.

    • I think it’s very common to have some cash stored around the house. Where to put it so that it can’t be found by a thief is the big trick. Under the mattress is not the starting point.

  6. We keep most of our EF in a money market fund with Vanguard, however, when it reached a certain amount, we decided that we could take a little and invest it. We still put money into the EF, but once again are thinking of investing just a little. We keep those items separate from the rest of our portfolio so we don’t lose track of them and can act quickly if they start to tumble.

    • It may just be in the view/mindset of the person but I classify investments as investments, not as part of my emergency fund. Once money is chasing a return it becomes an investment in my mind. If my EF had become that large I wouldn’t contribute to it anymore. Just send the money straight to investments.

  7. I could not agree more Brian. Like you said, it seems so contrary to many of us to let money sit in a savings account earning virtually nothing but the last thing I want to do is run into a situation where we need access to money and either we can’t get to it or have less because I was trying to be clever with it. So, we just basically view it as insurance like you do.

    That said, we’ve separated our EF out a little – we have several thousand in a savings account with our local bank. We have our personal & biz checking accounts there so in the event we have an absolute emergency we can transfer it right away. The bulk of our EF is with some other things we do at USAA in a money market account and then, for our longer term goals like a down payment, are in a high yield savings account online. It’s all relatively easy to manage and helps us sleep at night.

    • That’s cool John…I think it’s completely fine to have the e-fund in more than one place. Ours has grown to the point at our bank that we are considering moving some to an online high yield account.

  8. I used to put some of my money under my clothes! 🙂 When my daughter saw my money she told me that her fairy godmother gave that money. 🙂

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