How can I earn more in my emergency fund?

My emergency fund

I keep $25,000 in an emergency fund. Ideally I’d like it to be $50,000. However I have competing priorities like funding my retirement accounts, saving for college, and travel. My emergency fund is for just that – emergencies. It’s my stash to help me sleep at night. Ideally I will never touch this money. However there will be times in life when we have a car break down, an unexpected emergency room visit, or just lower income months. Hopefully my checking account or investment accounts would cover these needs but this is here as a last resort. I feel better knowing it’s there. How big should your emergency fund be?

30 Minutes to earn $450

Historically I kept my emergency fund in my main checking account. I mentally accounted for the fact that it was not to be touched. It was convenient. It didn’t take any extra work. Unfortunately it didn’t earn anything. I mean zero. I gave Wells Fargo $25,000 and it just sat there.

Last year I had enough. Sure this money is to be kept liquid. But couldn’t it earn something? I am a financial advisor and knew the other options but I was too lazy to do anything about it. Until last year. Last year I was doing my taxes and waiting for my 1099 from Wells saying how much interest I earned. I didn’t receive one because it wasn’t enough to report to the IRS.

I decided to take action. I opened an account with Ally Bank – a high yield online savings account. And really it didn’t take 30 minutes. It was more like 10. I transferred $25,000 from Wells Fargo over to Ally Bank. A year later as I’m doing my taxes I earned about $450 from that one move.

At the time of this writing Ally Bank offers an online savings account offering a 1.6% yield. In the early 2000’s that would have seemed paltry. But in this decade it’s quite appealing. Most local banks pay nothing or 0.01% on checking and savings. Getting an extra $450 last year felt like a win.

And the beauty of this is I have access to it. I can withdraw from from the account up to 6 times per month without sacrificing any interest. But I wouldn’t do that because it’s just there for emergencies.

Local banks win because we are lazy

I should have done this years ago. I knew this option was out there. But inertia worked against me.

I see it all the time. I live in a small college town – Brookings, South Dakota. I come across a lot of locals who keep $50,000 or $100,000 in the local bank and they get paid nothing for it. Sometimes when they complain to the banks they get talked into a CD that doesn’t pay much and ties up their money for the duration of the CD. They might get 1% or 1.5% on a CD but then if emergency strikes and they need those funds they have to sacrifice the interest earned.

There is a better option. Take the time to research your best options and make your money work for you.

Everyone needs an accountability partner

We need someone in our corner advocating for and pushing us to improve our lives. Whether it’s a doctor, a dentist, or a financial advisor. We all need the extra push to get better and earn more out of this life.


Brian Berkenhoff, CFA is a fee-only financial advisor in Brookings, SD. Serving clients locally in Brookings, Watertown, and Sioux Falls and across the country virtually. Birch Investments specializes in wealth management solutions, including financial planning and investment management.

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