Question

Which of the following is classified as an emergency fund?

Responses

$8,000 in a 1.5% interest account your bank
$8,000 in a 1.5% interest account your bank

$5,000 in a 0% interest checking account at your bank
$5,000 in a 0% interest checking account at your bank

$20,000 in a mutual fund with a 7% annual return
$20,000 in a mutual fund with a 7% annual return

$10,000 on loan from your bank

Answer 1

Emergency funds should be liquid, safe, and easily accessible. So the emergency-fund items are:

- $8,000 in a 1.5% interest bank account (yes)
- $5,000 in a 0% interest checking account (yes)

The other two are not emergency funds:
- $20,000 in a mutual fund — no (subject to market risk and volatility)
- $10,000 on loan from your bank — no (it’s debt, not savings)

(Preferred: keep 3–6 months of living expenses in a liquid savings/checking/money-market account.)