Bigger is always better, right? When it comes to your emergency fund, this idiom doesn’t ring true. Yes, you want a healthy emergency fund but you may miss out on other financial opportunities if you go overboard.

If you’ve ever had a crisis where you needed that unexpected sum of money, you know all too well the importance of an emergency fund. And if it hasn’t happened to you, more than likely you know someone who’s had that crisis.

What we know: it’s impossible to predict what the future will bring but an emergency fund is there to provide a little bit of comfort and financial protection. 

I learned about the importance of an emergency fund about four years ago. I was eight months pregnant and our furnace died in the depths of winter during a particularly vicious cold snap. I’m talking -20° degrees. Luckily, in anticipation of the baby, my husband and I had padded our emergency fund. While we weren’t super excited to spend thousands of dollars on a new furnace, we felt lucky to have enough money to cover it outright.

This is just one example of how an emergency fund can come in handy. In my mind, losing heat in the middle of the winter when you’re super pregnant qualifies as a low-grade emergency! Whether it’s job loss, a health issue, the need for a new roof, or a global pandemic. You never know what fun catastrophe is waiting around the corner! 

How big should your emergency fund be?

Is Your Emergency Fund Too Big? - How big should your emergency fund be?

So isn’t this the question of the hour: how big (or small) should your emergency fund actually be……

When it comes to how large your emergency fund should be, most of the experts preach a period of three to six months. In theory, three to six months provides a reasonable amount of time, should you lose your job and need to find a new one. 

Of course, three to six months is just a guideline. How big your emergency fund should be will also depend on a number of personal factors including what you need to feel comfortable and protected and how much money you can realistically save.

If the thought of only having three to six months saved in case of emergency gives you anxiety and heart palpitations, then maybe a year’s worth of expenses is a better goal for you. 

On the other hand, if the thought of saving three to six months’ worth of expenses sounds completely impossible, then start small. Decide on a number that is realistic for you and start stashing that away each month. An emergency fund with a couple of hundred dollars is better than having no emergency fund

Money management resources

There are plenty of online resources and personal finance software options that can help you get your finances in order so you feel more confident in saving for an emergency fund. You can check out resources like PocketSmith to help you get started. 

PocketSmith is a money management tool that you can use to help manage your income, track your expenses, and work towards particular goals like creating an emergency fund or paying off debt. 

PocketSmith offers budgeting tools and forecasting software that allows you to predict what your bank balances will look like 30 years into the future. You can even use PocketSmith to work through “what if” scenarios for your finances. What if you lose your job? What if you need to buy a new car? This can be a super helpful feature when it comes to deciding how much money you should have in your emergency fund.  

What happens if your emergency fund is too big?

Now let’s talk about why bigger is not always better when it comes to your emergency fund.

The goal here is not to deter you from saving more money; saving is great. But there are some important trade-offs to consider if you are lucky enough to have a sizable emergency fund. 

why having a too-large emergency fund is a bad idea and how to earn more interest on the money while still keeping the funds accessible

Your money can’t grow

First, if you follow the advice of most financial experts, you will keep your emergency fund in a regular old savings account. Here you will earn anywhere between 0.01% to 2% interest.

This is not a great rate. I’ll say it again – it’s not a great rate.

Over time you’ll be lucky to keep up with inflation. Chances are you might even lose money as a result of inflation.

This isn’t a major issue if you have three, six, or even a year’s worth of expenses saved. However, if you have most of your life savings in a regular saving account not even earning enough money to cover inflation, you’re not going to be able to grow your savings. 

Opportunity costs

Second, if all of your money is living in a regular savings account, you are missing out on better, more lucrative opportunities. I’m talking about investing. According to data from Goldman Sachs, the average return of the S&P 500 over the last  10 years was 13.6% annually. Over the last 140 years, the average return was 9.2%. These rates blow the rates from your savings account out of the water. 

Not to mention, if you aren’t investing in a 401(k) or an IRA, you are missing out on potential tax savings.  

How to create the right-sized emergency fund?

Is Your Emergency Fund Too Big? - How to create the right sized emergency fund?

When trying to create an emergency fund that is the perfect size for you and your specific needs, consider these questions: 

  • Are you the sole bread earner in your family?
  • Are you self-employed or a seasonal worker with variable income throughout the year?
  • Do you only have one source of income? 

If you answered “yes” to any or all of these questions, then you should aim for a fund that covers six months of expenses instead of three. This will help to provide some extra financial security for you and your family.

Alternatively, if you answered “no” to all of the questions above – you are in a dual-income household, bring home a consistent paycheck, and you have multiple sources of income (day job plus a side hustle or part-time gig), then you may be able to get away with a three-month emergency fund. 

You may also want to consider how much debt you are carrying. If you have a ton of high-interest debt that you are working to pay off, you may want to opt for an emergency fund that’s on the smaller side. But, make no mistake, an emergency fund is still recommended even if you have debt. 

To find out what size emergency fund is right for your needs, check out MU30’s emergency fund calculator below.

Where can I store my emergency fund?

When deciding where to store your emergency fund you should look for an option that provides security as well as quick and easy access to your money. A location with a competitive interest rate is also a great feature.  

High-yield savings

In a high-yield account, your money is still safe and easy to access. When looking for a high-yield savings account do some comparison shopping. Look for a high-yield account that offers a competitive interest rate and no fees.

As a pro tip – the best high-yield savings accounts are usually found online. This is because online banks have fewer expenses than traditional brick-and-mortar branches.

If you’re interested in a high-yield saving account, you can check out the CIT Bank Savings Builder account. It is a great option for your emergency fund. You can earn up to 1.00% APY with a minimum balance of $25,000 or a $100 monthly deposit. There is also a $100 minimum deposit to open the account. See details here.

With the CIT Savings Builder account, there are no account opening or maintenance fees and you earn daily compounding interest to maximize your emergency fund’s earning potential. While you likely won’t be doing a lot of transactions with your emergency fund, you can do six transactions per statement cycle. You can also deposit checks remotely to fund your account and easily make a transfer with the CIT Bank mobile app. 

CIT Bank. Member FDIC.

Where to put your extra savings

Is Your Emergency Fund Too Big? - Where to put your extra savings

If you find yourself in the fortunate position of having an oversized emergency savings account, you may be looking for alternative ways to use your money.

Pay off debt

If you have a healthy emergency fund but you’re carrying debt, you can focus more of your money on debt repayment. Start with any high-interest loans or credit cards.

CD laddering

A CD is a certificate of deposit. A CD ladder is a saving strategy that investors use to reduce risk. The goal is to spread cash equally across multiple certificates of deposit accounts in order to capitalize on the higher rates associated with long-term CDs while also ensuring you have quicker access to your money saved in short-term CDs. 

While CDs have some of the highest interest rates offered by a savings account, there is some risk in using this approach for your emergency fund. This is because your money is locked in for a certain amount of time. Meaning, you might not be able to access it exactly when you need it.

However, some short-term CDs are only for a year. When your money matures at the end of its term, you can either take it out and use it if you encounter an emergency or, you reinvest it into a new CD. 


If you have extra money that you’re looking to re-route from your emergency fund to somewhere else definitely consider investing it. Open up a 401(k) and take advantage of employer matches if this is available to you. Or, consider opening an IRA

If you’re not sure how to get started, there are tons of amazing investing apps that are easy to use and can help you to start growing your money. Some of these apps include Robinhood, E*TRADE, and Public.  

If you want to start investing, Robinhood can help you to do that. Robinhood has the goal of democratizing investing. They want to make it simple enough that everyone can do it. This is why they offer a ton of helpful educational resources to help even the most beginner investors figure it all out.

The Robinhood app offers commission-free investing in individual companies or ETFs. It also offers a Cash Management feature which allows you to hold your uninvested cash for daily spending while it also earns 0.30% APY (subject to change at any time).

E*TRADE is another online brokerage option that you can look into. E*TRADE is an OG of online brokerages. It was founded in 1982 with its first online transaction occurring in 1983. With this kind of history, E*TRADE is a good bet.  

E*TRADE offers a number of different account types including brokerage accounts for investing and trading, retirement accounts (IRA, Roth IRA, and Rollover IRA), as well as bank accounts. E*TRADE also has a ton of online resources to help those who are new to investing.


There is no one-size-fits-all when it comes to emergency funds. Everyone has an extremely diverse financial and personal situation. When trying to determine the size of your emergency fund, be realistic about your needs and what you can actually get buy on. 

Saving for an emergency fund is a critical piece of your financial puzzle, but it’s not the only piece. If you feel like you’re going overboard on your emergency savings, consider putting some of your money into a retirement account or start investing so you can really grow your money. 

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About the author

Jessica Martel picture
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Jessica Martel is a freelance writer, professional researcher, and mother of two rambunctious little boys. She’s interested in all things related to personal finance, psychology, and parenting. You can connect with Jessica on her website The Financial Graduate, Linkedin, or Twitter.