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Invest Your Emergency Fund the Correct Yet Boring Way

The question gets asked so often. Where can I put my emergency fund where it will make more than the 0.40% interest from my savings account or money market account?

Or it gets asked another way. I am saving for a home down payment that I will need in 2 years. With which stocks should I invest this money?

There are so many new options out there that the temptation to deviate from traditional advice is strong.

I always give the same answer (that will come later!) so I figure I would flesh it out and share it here!

First, why do high yield savings accounts and money markets funds suck right now?

I think it’s first important to understand why people are dogging savings accounts and money market accounts currently.

(Just for reference, a money market account is an interest bearing account with a financial institution or bank. Savings accounts are just your run of the mill usual savings account with your bank.)

emergency fund

The benefits of these accounts are that the money in the accounts is very, very liquid. You can withdraw it easily at any point.

The downside is that the interest yield is generally lower. Remember, risk is compensated by higher potential yield. So, low risk = low yield.

But, the yield is usually something reasonable. Currently, the yield is unreasonably low. Why?

Banks and financial institutions want you to save your money with them. For every dollar that you deposit with them, they get to lend out an even higher dollar amount to someone else.

So, they entice you to save money with them in a savings account with an interest rate of say 2%. They then turn around and lend that money to someone else with an interest rate of 7%. They then make a return of 5% on your money. Not a bad deal for them.

However, interest rates now are currently very low. So banks can only lend their money our at much lower rates, like 3-4%. So, if they offer you a yield of 2% on your savings account, their margin is only 1-2%. That’s not good for them. So they’ve reduced the interest offered on savings accounts.

Ok, back to your emergency fund

First, what is an emergency fund?

Well, your emergency fund is a stash of money that represents 3-6 months of your average expenses. Your emergency fund is money that you could need at any time. For an emergency. Its even in the name.

Therefore, you want to be able to have access to that money easily at all times. Because you never know when you may need it.

What is the ideal place to house your emergency fund?

Invest it somewhere safe, liquid, and accessible.

Hmm…remember the advantages of a savings account or money market account?

It’s the liquidity, the accessibility, the safety.

That is just perfect for an emergency fund.

So, that is the answer to the question. Keep your emergency fund in a savings account or money market account!

Even if the rates are low. You are ok with low interest rates because your primary concern is liquify, accessibility, and safety. And these accounts have those attributes in spades.

What about money that you are saving for something else?

I guess I only answered part one of the questions I posed above. The other part is in regards to someone savings money for a downpayment or anything else that is needed in the next, say, 3-5 years.

Well…the answer is the exact same. You want to keep it in a safe place. You want to prioritize liquidity and availability over yield and return.


Well, the stock market and even bonds are volatile. There is higher reward for the higher risk. I recommend you minimize the risk by investing in broadly diversified, low cost index funds. But you should be doing this with money you will not need for 20+ years, not 5 years.

The most recent temptation

I’ve heard recently many people asking about keeping an emergency fund in Stablecoin. I am by no means an expert but I think this is a bad idea.

Stablecoin is a cryptocurrency that is theoretically indexed to the US dollar to minimize volatility. However, the advertised returns are 8-9%.

Hmm…something just doesn’t jive there for me. With higher returns come higher risk. So this just doesn’t add up.

For me, I wouldn’t trust this with my home downpayment or emergency fund.

Keep it boring and here’s why!

A cautionary tale of an emergency fund gone bad

Let’s say that you don’t follow this advice. You put your emergency fund (equal to 3 months expenses, say $30,000) in stocks to try and gain some greater yield. You did this in January 2020.

Then, around March 2020, COVID happened. You were placed on furlough. You needed money to help pay for your family’s daily expenses. This is the exact reason why you saved an emergency fund.

So, you go to pull out your emergency fund. But wait! The stock market is now a bear market and the value of your stocks has dropped a ton. They are now worth $15,000. You need the money so you have to sell low. And even worse, this is less money than you need to maintain your lifestyle through this period of decreased income.

You’re in trouble.

The potential of this situation happening is not worth the increased potential yield that you chased.

In this case, you forgot to prioritize safety and liquidity with your emergency fund.

Now, just run the same scenario but with a house down payment. Equally not good.

Let’s sum it up

Keep your emergency fund (or any pile of money you need in the short term, like 5ish years) in a safe place, like a high yield savings or money market account, so that it can be accessed and used easily when it is needed, in an emergency.

This emergency fund will keep you from needing to take out more debt or extend credit for things like car repairs, a broken furnace, or a pandemic that results in decreased income for an extended time period.

Having an emergency fund is like a life preserver for the crazy things that no one can predict. Too many physicians found this out the hard way with COVID. Make an emergency fund a priority and make keeping it safe a habit. Don’t chase performance with it.

What do you think? Do you have an emergency fund? Where do you keep it? Have you been discouraged by the low rates in savings accounts and money market accounts? Let me know in the comments below!

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    Jordan Frey MD, a plastic surgeon in Buffalo, NY, is one of the fastest-growing physician finance bloggers in the world. See how he went from financially clueless to increasing his net worth by $1M in 1 year and how you can do the same! Feel free to send Jordan a message at [email protected].

    4 thoughts on “Invest Your Emergency Fund the Correct Yet Boring Way”

    1. Great post Jordan. Totally agree (even though it totally sucks to watch the interest drop in my savings account over the past year).

      • Hey Josh, thanks! It totally sucks and will eventually go up. The temptation is definitely real and I’ve felt it but just not worth this risk!


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