Where to Stash Your Emergency Cash

Thursday, October 11, 2007; Page D02

Krista Swetz and her husband are just a few months away from reaching a money milestone.

The Maryland couple will soon have saved the three months' worth of living expenses I'm always telling folks to have stashed away in case of an emergency.

Once they reach their goal, Swetz wanted to know where they should keep the cash.

First, keep in mind that this money should remain readily accessible. You'll want to be able to withdraw it quickly without having to sell an investment or pay a penalty. This is your safety stash, so you don't want to put it in a long-term holding.

You have several options for where to put your rainy day money. Whatever you select is fine because there really isn't a wrong choice among these options:

¿ Simple savings account. Before you shout "no, no way," know that even in this low-interest rate environment you can find institutions offering a good rate on a savings account. But you may have to move beyond your comfort zone. Some of the best rates are not from typical brick-and-mortar banks.

For example, E-Trade is offering (as of Tuesday) a 5.05 percent annual percentage yield on savings accounts. ING Direct, an Internet bank, is offering (as of Sept. 19) 4.3 percent annual percentage yield. Deposits at both institutions are federally insured. Getting your money is pretty easy. With a click or two, you can transfer money to a regular checking account at any bank.

When going with a nontraditional financial institution, check the fine print because transfers can take a few days and you may be limited to a certain number of withdrawals a month. But none of these terms should deter you. After all, this is your emergency money and you don't want it to be too easy to withdraw.

To search for institutions with the highest savings account rates, go to http://www.bankrate.com. At the top of the Web site, click on Compare Rates. Under CDs and Savings, select money market high yield (MMA) and savings account rates.

¿ Certificates of deposit. Short-term CD rates are pitiful these days. The rates for longer CDs are better. But you wouldn't want to lock up your emergency money in a five-year CD. However, you could "ladder" your CDs. Laddering allows you to take advantage of typically higher rates offered by longer-term CDs while maintaining access to some of your money. With this strategy, you divide your money and buy a series of CDs that mature at different times. Bankrate.com has an online calculator to help you figure out how to ladder your money in CDs. Look under the link for calculators.

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