• Skip to main content
  • Skip to primary sidebar

Ask Liz Weston

Get smart with your money

  • About
  • Liz’s Books
  • Speaking
  • Disclosure
  • Contact

Don’t invest emergency cash

December 23, 2013 By Liz Weston

Dear Liz: I always hear you talking about having an emergency savings fund. Most people that I’ve heard talk about this recommend keeping it in cash. I just couldn’t stand watching that money languish in a low-interest savings account, so I recently moved it over to my brokerage account and purchased a few exchange-traded funds. My wife and I are under 30 and we both have very stable jobs. We have adequate insurance (including a home warranty). We also have a $20,000 signature line of credit through our credit union in case of an emergency, in addition to multiple credit cards with high limits and no revolving balances. I feel that we are covered in case of an emergency with the credit line alone. Does all of this sound reasonable to you or should I go back to keeping my emergency fund in cash?

Answer: Lines of credit can be a reasonable substitute for an emergency fund for people who have more pressing financial goals, such as saving for retirement and paying off debt.

But there’s really nothing like cash in the bank for meeting life’s inevitable financial setbacks. Even seemingly stable jobs can be lost, and lines of credit can get used up fairly quickly. If these personal setbacks happen at the same time as a stock market downturn, your emergency fund could dwindle dramatically.

That’s why it’s best to keep emergency cash safe and accessible in an FDIC-insured bank account. You can squeeze a little extra return from the money by opting for one of the online banks that’s paying close to 1%. Trying to squeeze much more, though, increases the odds that it won’t be there when you need it the most.

Related Posts

  • The emergency fund you can eat

    Cash can help you survive an emergency, but saving as much as financial planners typically…

  • Why you want an emergency fund

    Dear Liz: I regularly read about people in your column who don't feel the need…

  • When your emergency fund runs out

    You’ve cut spending to the bone, sold excess stuff and hustled every side gig imaginable.…

  • Q&A: Should extra cash go to retirement or emergency savings?

    Dear Liz: I have an excessive amount of money in my bank checking and savings account…

Filed Under: Investing, Q&A, The Basics Tagged With: emergency fund, Investing

Primary Sidebar

Search

Copyright © 2025 · Ask Liz Weston 2.0 On Genesis Framework · WordPress · Log in