Should I keep my emergency fund in a savings account?

All of us face unexpected expenses, whether it’s a major car repair or our computer crashing for good. To cover those contingencies, you should set aside money in an emergency fund. While you could use a credit card for unanticipated expenses, the charge might exceed your credit limit and you could face extremely high interest rates.

To cover these contingencies and who knows what others, most financial experts recommend that you keep three to six months of your income in an emergency fund. Even after you’re working, you can’t count on a regular paycheck. Your emergency fund gives you a cushion during a period of unemployment or if an accident keeps you from working.

Your emergency fund doesn’t have to be kept in your sock drawer, especially since you might be tempted to spend it. You should look for an investment vehicle that has no restrictions on accessing your money. A savings account fits these requirements; however, a money market account usually pays higher interest and, therefore, is usually a better place to keep your emergency fund.