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Americans are hoarding their cash — here are the best places to put it

How to build your emergency fund
How to build your emergency fund 05:57

Americans have dramatically increased their savings rate since the start of the COVID-19 pandemic sparked unprecedented mass layoffs and furloughs . According to the U.S. Bureau of Economic Analysis, the personal savings rate in April surged to a record 33%. That's way higher than anything seen in pre-pandemic times. In 2019, the personal savings rate never exceeded 8.8% in any month.

The record personal savings rate in April was driven by several temporary factors unique to the pandemic, such as the stay-at-home orders as well as economic stimulus payments to more than 100 million Americans. However, one factor may have a more lasting effect: the concern about job losses, a  hard reminder of why an emergency fund is necessary in the first place.

An emergency fund that can cover at least three to six months of living expenses is an essential component of any personal finance plan. 

A deposit account at a bank or credit union can provide the accessibility and safety for your money that's important for an emergency fund. Unlike stocks and bonds, higher yields on deposit accounts don't come with higher risk. So it makes sense to go with the highest yields for your deposit account as long as it provides the accessibility that emergency funds require.

One of the best places for an emergency fund is an online savings account. Safety is assured by choosing an online savings account that's provided directly by a FDIC member bank. Accessibility is provided by linking an online savings account to your existing checking account. This makes it easy to electronically transfer funds to your checking account when an emergency arises.

Interest rates have plummeted due to the pandemic, and online savings accounts haven't been immune to rate cuts. But online banks typically are able to offer higher interest rates on savings accounts than brick-and-mortar banks since they don't have the expense of a branch network to maintain. 

How to boost a savings account's yield

In addition to online savings accounts, some online banks offer no-penalty certificates of deposit, which provide a way to boost yield without sacrificing safety or accessibility. Standard CDs are safe, but they're not fully accessible since you can't make early withdrawals without paying a penalty. You have to wait for the CD to mature to access the principal without a penalty.

No-penalty CDs don't have this limited accessibility. Soon after the no-penalty CD is funded, you can close the CD anytime and take all of the principal and accrued interest without any penalty. 

U.S. jobless claims pass 40 million 06:01

The downside of no-penalty CDs is that the rates tend to be lower than comparable standard CDs. The main benefit of the no-penalty CD is that it provides a rate lock without the loss of accessibility. Unlike a savings account, you don't have to worry about the rate dropping, at least until the CD reaches maturity.

By adding no-penalty CDs with your online savings account, you can earn higher yields, especially when interest rates are falling. Here are some of the best bets for savers, based on a review of this week's savings account data from my website DepositAccounts.com. Just remember that the listed rates below could fall:

  • Marcus by Goldman Sachs (marcus.com) offers an online savings account (1.30% APY) and three no-penalty CDs. The no-penalty CDs have terms of 7 months (1.20% APY), 11 months (1.10% APY) and 13 months (1.00% APY). The online savings account has no minimum balance requirement, but the CDs require a $500 minimum deposit.
  • CFG Bank (thecfgbank.com) offers an online market account and a 13-month CD that allows for a one-time penalty free withdrawal. The money market account has tiered rates (1.50% APY on balances of $25,000 and above, 1.40% APY on balances from $1,000 to under $25,000). The 13-month CD (1.20% APY) has a minimum deposit of $500.
  • Ally Bank (ally.com) offers an online savings account (1.25% APY) and an 11-month no-penalty CD (1.20% APY). Both have no minimum balance requirements, but the CD has in the past offered higher rates on larger deposits.
  • CIT Bank (cit.com) offers an online money market account (1.30% APY) and an 11-month no-penalty CD (1.15% APY). The minimum opening deposit is $100 for the money market account and $1,000 for the CD.
  • Citizens Access (citizensaccess.com) offers an online savings account (1.30% APY) and an 11-month no-penalty CD (1.15% APY). Both have a minimum deposit of $5,000.

The personal savings rate will likely fall from its record high, but it may remain elevated as Americans gain appreciation for an emergency fund to help cover expenses during a job loss. An online savings account offers the accessibility and safety that are essential for an emergency fund, and it also offers the highest yields for liquid deposit accounts. By adding no-penalty CDs with an online savings account, you can boost your yield without sacrificing accessibility or safety. 

Ken Tumin is founder and editor of DepositAccounts.com, which has been tracking and rating the savings, CD and checking account offerings of banks and credit unions for more than a decade.

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