Local Emergency Savings Funds

In response to my recent ING Direct review and a discussion on emergency funds James asked a question in the comments, “How close should they be?” That’s a great question, and one I have asked myself since turning to online banking. A few online banks offer ATM card access, and a couple even reimburse ATM fees for withdrawals. However, the ING Direct Orange Savings account offers no such features. Transfers are handled online and take two or three business days to show up in either account. This presents a dilemma – what if I need access to my emergency savings today?

Start Local and Expand Later

We have decided to save $1,000 locally in a bank savings account, and anything we save above that we transfer to ING Direct. The interest on a bank savings account these days isn’t enough to buy my kid a pack of chewing gum, but I’m more concerned with accessibility.

Keeping a portion of your emergency fund locally provides quick access to at least the first $1,000 of our emergency fund in the event of a real emergency. This would be enough to cover the initial costs for most repairs, out-of-pocket medical care, etc. The remaining emergency funds would show up a couple days later for larger emergencies that required more than this “local emergency fund” could cover.

Select a Comfortable Level for You and Yours

I mentioned that I am not overly concerned with the interest rate on this local emergency fund. However, I do want to maximize any interest income potential with the larger, online emergency fund, so it makes sense to limit our local emergency savings fund to a specific amount. This minimum amount should be decided on by you and your family, not based on a recommendation from someone else. Around $1,000 works well for our family, but it may or may not work for yours, and that is fine.

In uncertain times it makes sense to save a little more. When your checking account has a healthy balance, perhaps you could save a little less. The point is to have something liquid, easily accessible, and local so you can avoid turning to credit cards in an emergency.

Couldn’t I Just Use an Emergency-Only Credit Card?

Sure, assuming you have the discipline to identify real emergencies, and pay off the bill using emergency fund savings when the bill arrives. I have fallen into the trap of using a credit card to finance an emergency with the self-promise to pay it off when I get the bill. The bill arrives, and I am reluctant to use such a large chunk of savings to pay if off in one payment, so I rationalize that I will pay it off over time since the credit card’s interest rate is low, or because I like having the safety net of cash in reserve. Now I am stuck with a revolving balance that with interest is causing that emergency to become more and more expensive with each billing cycle.

The only way to get off the never-ending hamster wheel of debt is to stop using credit cards and loans to finance life events. Create a local emergency fund to catch the small stuff, and a larger, fully-funded emergency fund online to save for life’s curveballs.


  1. You’re absolutely right about the need for a local emergency savings fund — it took me a while to appreciate this.

    My current solution is keeping $1000 – $2000 in a Citibank Ultimate Savings Account, which currently earns 2.25%… while not a great interest rate, its made up for by the fact that you can access the account from an ATM, and the daily limit from any Citibank account is $1,000, which seems to be more than enough for any sort of emergency.

  2. Why not just use a money market account that gives you check writing or debit card access to your funds? As I understand, money market accounts generally give better rates of return than the high yield savings accounts. Better rates immediate access = win/win IMO.

    • @Obsolete: I used to have an account with HSBC that offered ATM access, but even that had daily limits for withdrawal. I would have to wait two days to cover a transmission job or a busted water heater assuming I kept nothing locally. A high-yielding money market account with unlimited check-writing is the ultimate – you are correct. But those are hard to find because of monthly withdrawal limits, etc. I prefer to just keep $1,000-$2,000 locally and stash the rest in a high-interest online savings account.

  3. Todd is right, there are times when you need cold hard cash and a money market account just isn’t good enough. ATM access usually is good enough, but sometimes they fail as well.

    I think keeping some money at home for the really big emergencies (the kinds that affect entire neighborhoods, states, and regions) is probably a good idea too.

  4. I’m one of the rare breeds of debt-haters who isn’t afraid to use the credit cards if necessary and then immediately transfer the funds (via electronic payment) out of the emergency account (money market at a brick and mortar bank) as soon as we get home. I don’t even wait for the credit card bill to arrive. Our bank will complete the transfer within 24 hour and make the funds unavailable in the meantime, maybe that makes it less of a temptation for me to fiddle with playing it off? (Admittedly, Mr. Frugal Urbanite would be the type to rationalize spreading out the payments so it’s probably a good thing I’m in the habit of immediately transfering the money.)

    I also admit to keeping a hundred dollar bill in the car and two at home for desperate emergencies where only cash will do. These bills have been following me around for over a decade, so I know I won’t spend them frivolously but if someone can’t resist temptation then this isn’t really an option. No, I don’t gain interest on the cash, but I consider that a fee for peace of mind.

  5. Why not just open an ING Electric Orange Checking Account? The money from your Orange Savings Account can be moved to EO Checking instantly. Then you could use one of their many free ATMs to get your cash out instantly. This is the method we’re using and it’s worked out great.

  6. I think the whole idea of an “emergency” fund means that it should be as liquid as possible. That means accessible. Wherever you can readily get to it is obviously best. I personally like the way you have yours structured.

  7. That’s not a bad idea, PT. Our emergency fund is at Wachovia, but that could work too. (We have lots of free Wachovia ATMs around, so it seemed like a good banking choice).

  8. That’s excellent advice. While I would say your bigger “emergency” fund should be far away from “gotta have it now” you should have a local for for the “I really need it Now”

  9. I have both ING and a credit union savings account. I also have plans to start saving some cash to have on hand in case of a regional emergency that limits us to online banking access or in person access.

    I don’t know if we have the will power to not touch cash on hand but we’re going to try. 🙂 And it might not earn interest but interest won’t matter if all the banks are closed and internet service is down.

  10. We do something similar. Our emergency fund is a sad $1000 right now while we pay off debt. We keep half at the local credit union and the other half with ING. This gives me a more conrete idea of short-term vs long-term emergencies. Anything that needs to be paid for quickly can come from the ATM at the credit union. But if it is something bigger, than it can either wait until we get the money transfered or put it on our paid-off credit card. We have an Electric orange account, so I can now make “transfers” between ING and the Credit union. I basically write myself an electric check, and it takes about the same amount of time to go through as it would for my linked checking account at a different bank.
    I like the idea of having some closer and some farther away.
    The problem with money market accounts is the tiered rate. If you have very little, the interest is very very sad. You make more at an online high-yield account.

  11. We are actually in a situation now where we’ll be needing to use our emergency fund – my wife was in the hospital for 3 weeks with a blood clot and we’ll have plenty of bills to pay. Luckily we don’t need to have access to the money right away because the bills haven’t all come in yet, but we do have it in a close-by savings account anyway. We can access the money as easily as going to the ATM or local bank branch.

  12. I second PT. An ING Checking account, with the debit card tucked in a safe place, gives you ATM access in an emergency. The transfers online are instantaneous.

  13. Wow!! I am really glad that I asked the question, and thank you for mentioning me in this post! I really enjoy reading your blog and check it out everyday via RSS.

    It had really been bothering me about where to keep an “Emergency Fund”. It makes sense to try to keep it local, and forgo the interest that you will earn, as it is not be considered an investment. It really do work, having money set aside. Some people would actually call it “Attitude Money”. When things are looking bad and you think that you don’t “have” any money. You can look at that account and see that you actually do. Then, your attitude can get better and you will know that you can actually do this!

  14. One should keep ~$500 ($10s and $20s) in a safe at home and the rest of one’s emergency savings should be in a fairly quickly accessible high(er) interest savings account. Most allow transfers back to a chequing account within 2-3 business days. Anything big that occurs goes straight on to the credit card.

  15. I have never had an emergency that I could not put on credit card or the bill (for medical problems) was not billed later. I have all my money except for bills for this month in a high yield checking or in ING. The couple of times I have needed to pay something immediately it went on the credit card and the money was transferred over that week to pay it off.