Key Takeaways
- Emergency funds are essential in retirement, just as they are in other stages of life.
- Investments alone aren’t enough, as those funds can be hard—or not ideal—to access in a hurry.
- Whether you already have a solid emergency fund or need to build one up, choosing safe, high-yield options is wise.
- Combining accounts, such as a high-yield savings account and top nationwide CDs, helps boost your earning potential while ensuring easy access to your money.
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Don’t Forget Easy-Access Emergency Money in Retirement
You’ve probably heard how important it is to have an emergency fund: It can help in unexpected situations, such as emergency medical bills, home repairs, and other financial emergencies. If you’re able to set aside money in case these sudden costs arise, it can keep you from going into debt or taking funds from retirement accounts or other sources better kept intact for other purposes.
While some experts suggest saving three to six months’ worth of expenses, your financial situation and goals will determine the ideal amount to aim for.
“It can feel very daunting to build up to a three- to six-month emergency reserve, but even putting aside $25 a month is a start,” said Danika Waddell, a partner at Xena Financial Planning in Seattle. “You can always add to it with a bonus, tax refund, or cash gift.”
Have you considered setting aside an emergency fund for retirement? It’s still important to have accessible cash, just like when you were younger. Here’s why: “Those same unexpected expenses happen whether or not you are employed,” Waddell said. “If your money is tied up in investments (or you receive it as a monthly payment via pension or Social Security), you might still be caught off guard by a major car repair or damage to your home.”
5 Smart Options for Your Retirement Emergency Fund
The best scenario is to have easy access to your emergency fund when you need it, but earn interest on it while it’s sitting unused.
Here are five options to consider that can help you do both:
- High-yield savings account: With a high-yield savings account, you can withdraw cash easily while earning more interest than you would with a traditional savings account. More than a dozen of today’s best savings accounts pay 4.31% to 4.50% APY.
- Money market accounts: Money market accounts offer features of both a checking and savings account. They allow check writing and can offer interest rates better than or on par with those of regular savings accounts. Eleven options in our ranking of the best money market accounts offer 4.00% to 4.37% APY right now.
- Short-term CDs: Certificates of deposit (CDs) offer guaranteed rates for the length of the CD’s term–usually 3 months to 5 years. However, you’ll face an early withdrawal penalty if you cash in the CD before it matures. Today’s highest-rate CDs pay 4.50% to 4.60% APY on terms of 3 to 21 months.
- Brokerage money market funds and cash management accounts: Money market funds are mutual funds that invest in short-term, low-risk options, while cash management accounts (CMAs) combine checking, savings, and sometimes investment features. Both are offered by brokerage firms and robo-advisors, with the top rates currently in the upper 3% to lower 4% range.
- Short-term Treasurys: Treasury bills are U.S. government debt obligations that offer a guaranteed rate of return. Short-term T-bills generally have a maturity of 1 year or less and currently pay 4.09% to 4.48% APY.
A combination of these options may be your best bet for an emergency fund that lets you balance accessibility and your earning potential. High-yield savings accounts and money market accounts offer easy access to cash, while short-term CDs and Treasury bills provide higher, more stable returns and are a good fit if you don’t need the funds right away. Brokerage money market funds or cash management accounts help you diversify, though their rates can fluctuate.
Wherever you put your funds, prioritizing setting some aside for emergencies in retirement is key. “The vast majority of Americans don’t have an emergency fund, but that doesn’t mean it’s not worth having one,” she said. “Every little bit helps and can prevent a crisis.”
Daily Rankings of the Best CDs and Savings Accounts
We update these rankings every business day to give you the best deposit rates available:
Important
Note that the “top rates” quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher.
How We Find the Best Savings and CD Rates
Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000. It also cannot specify a maximum deposit amount that’s below $5,000.
Banks must be available in at least 40 states to qualify as nationally available. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.
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