What to do with your emergency savings if your high-yield savings account rate has plummeted

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• The Fed has cut interest rates to near zero since the coronavirus has wreaked havoc on the economy, which has sent APYs on high-yield savings accounts to new lows.
• If you have your emergency fund in a high-yield savings account that's suddenly earning little interest, you may be wondering whether it makes sense to keep it there or move it elsewhere.
• Since these are your emergency funds, it's important to keep them liquid - especially in these uncertain times.
• You may want to move your cash to a different savings account, but don't lock it up somewhere you can't get to it, like a CD.
• Find out who has the best high-yield savings account rate right now »

With the spread of the coronavirus wreaking havoc on the financial markets, the Federal Reserve has been slashing interest rates in an attempt to stimulate the economy (unsuccessfully). Those cuts have sent interest rates on high-yield savings accounts (HYSA) plunging, since bank rates follow the Fed.

In the space of just two months, I've personally watched the rate on my Ally HYSA drop from 1.90% APY in January to 1.50% APY at the time of this writing. And since the alternately plunging and rebounding market shows no sign of stabilizing anytime soon, many folks are likely wondering what to do with their emergency savings. Is it worth keeping that cash in a high-yield savings account if it's not earning much interest anymore?

Experts recommend that at any given time, the average person has three to six months' worth of expenses stashed away in an emergency account. In the past, an HYSA has been a favorite spot for those funds, because of its risk-free nature, easy access, and higher-than-average interest rates.

But now that the Fed has slashed interest rates to near-zero levels, is there somewhere better for your savings to maximize their growth? Is now the moment to, say, invest that capital? Swap to an HYSA with a higher rate? Consider a CD? Or should you adhere to experts' blanket advice to mostly do nothing and avoid looking at your account balances?

Let's explore each of those options to make sure you're getting the absolute most bang for your buck, even during these extremely uncertain times.

Swapping to an HYSA with a higher interest rate

I wish I could tell you that there's a high-yield savings account out there that hasn't been affected by the sliding markets, but that sadly isn't the case.

Interest rates are fluid even on a good day, and will ultimately follow the Federal Reserve. So even if you find an account with a higher rate than the one you're using now, there's no guarantee it will stay at its current levels.

If you do decide to switch savings accounts, just remember to ask yourself how much energy you're comfortable expending on a constant search for the best possible rates.

Investing in a CD

When interest rates drop, it's common for all eyes to turn to certificates of deposit, or CDs, which typically offer higher interest rates than standard savings accounts.

But while CDs are risk-free on paper, offering a fixed rate of return with no potential for loss, the whole point of an emergency fund is to have easy access to the cash in case of an emergency, so the liquidity of the account becomes an important factor to weigh.

One potential solution offered by Business Insider writer Holly Johnson is to "ladder" a series of CDs so that they mature at staggered times. That way, you can take advantage of the high interest rates while decreasing the chance that you'll need to withdraw from your CD before the end of its term. (Which typically incurs a healthy penalty, potentially nullifying all your interest-driven gains.)

Johnson suggests, for example, lining up four different CDs - a "12-month CD, an 18-month CD, a 24-month CD, and a 36-month CD. That way, you have a nearly constant source of funds reaching maturity you can access."

But while that strategy might be a no-brainer in calmer times, the COVID-19 outbreak is exactly the type of situation that emergency funds are intended to provide for. So when in doubt, err on the side of caution (and liquidity) in these volatile times.

Investing it

With the market suffering, now is an excellent time to boost contributions to your retirement accounts, as such contributions are likely to have a long-term payoff. But when it comes to the short term, investment often isn't worth the risk, as you could see your emergency fund vanish in one steep slide.

So it's really all about your timeline. If your job is stable (and promises to remain that way), your expenses are low, and you're flush with emergency savings, it might be wise to invest a portion of those funds in your financial future.

A Roth IRA is a particularly attractive option for investment, as it provides a high potential for long-term growth, and you can withdraw contributions (although not accrued interest) at any time without penalty. Although again, you're always inviting risk into your life when you invest in the market.

Or you could split the difference, as financial writer Miranda Marquit does. In a conversation with Business Insider earlier this year, she advised, "[a] large amount of money sitting in a savings account isn't doing as much as it could be." She revealed, "I keep about three to four weeks' worth of expenses in a high-yield savings account. The rest is in a taxable investment account." That breakdown ensures that if an unexpected situation arises, Marquit can cover her expenses in the short term while she frees up investments in the longer term.

There's no one piece of advice that will work for everyone seeking to maximize returns on their emergency savings. But if we could offer one takeaway no matter which option you explore: Exercise caution. Resist the temptation to become so enticed by high rates or investment opportunities that you sacrifice liquidity when it matters most.

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