The best places to keep your emergency fund

An emergency fund is a must-have for anyone at any time. You never know what life might throw at you, and things like a sudden job loss or a big medical bill can easily plunge you into financial chaos. Even when the economy is strong, it's wise to keep three to six months' worth of living expenses in an emergency fund.

But in precarious financial times, emergency savings are more important than ever. With inflation still high, interest rates still increasing and a recession on the horizon, it's essential to safeguard your future by setting aside money now.

"It's always a good idea to save more money when a recession is looming and while the Federal Reserve continues to try and cool inflation by raising interest rates," Krisstin Petersmarck, investment advisor representative at Bridgeriver Advisors in Bloomfield Hills, Michigan, previously told CBS News. "Life will continue to be more expensive than what we have seen in the last decade. Having a bigger safety net can ease unexpected financial burdens, as well as ease stress."

Where you keep your emergency fund can make a big difference in how fast it grows. You want somewhere safe where it can earn as much interest as possible so you have more to draw from when you need it. In this article, we'll explore the best places to store your rainy-day fund.

Best places to keep your emergency fund

Building an emergency fund is important, but so is putting it in the right place. The following are two of the best options.

High-yield savings account

High-yield savings accounts provide many of the same benefits regular savings accounts do. They're safe, easy to use and you can access your funds anytime (fee-free, if you're mindful of any withdrawal limits). But they have one key difference: They offer interest rates that can be more than 15 times higher than regular accounts.

Currently, the average interest rate for regular savings accounts is about 0.24%. High-yield account rates average almost 4% to almost 5%. That means you're leaving money on the table by parking your emergency funds in a regular account rather than a high-yield one.

For example, say you have $5,000 in your emergency fund. If you deposit that amount in a regular savings account at 0.24%, you'd have $5,011.99 after 12 months. Deposit that amount in a high-yield savings account at 4%, however, and you'll have $5,200 after 12 months. Since interest compounds, the higher the interest rate, the faster your earnings will snowball.

Plus, since most high-yield savings accounts are offered by online banks, they tend to have lower fees. So, you get to keep more of your money too.

Thanks to Fed rate hikes, now is a great time to open a high-yield savings account. Explore your options here to see how much you could be earning.

Certificate of deposit (CD)

A certificate of deposit is an account that offers you a fixed interest rate in exchange for agreeing to keep your money in the account for a specified period (typically six months to five years). As with high-yield savings accounts, the money you deposit into a CD is protected by FDIC insurance should your bank fail.

CD rates tend to be higher than high-yield savings account rates, but you'll incur a penalty if you withdraw funds before the term expires. This can be helpful if you're worried you'll be tempted to dip into your emergency savings before you need them.

You can ensure regular access to your funds by building a CD ladder or opening multiple CDs with staggered term lengths. As each CD matures, you can withdraw the funds as cash or reinvest them in a new CD at a higher interest rate.

Check out today's CD rates to see if a CD is the right choice for you.

The bottom line

There's no reason why you can't have both a high-yield savings account and a CD. In fact, splitting your emergency fund between the two can help you maximize your earnings while ensuring you always have access to funds when you need them.

Put your emergency funds somewhere safe by exploring high-yield savings accounts and CD interest rates today.