Your Emergency Fund Is So Big…

…the Federal Reserve is asking YOU for a loan!

Can't I get a rim shot?  Anyone? No?

Let's take a quick look at emergency funds and examine how much is too much when it comes to cash savings.  For a good primer on the basics of emergency funds check out Start an Emergency Fund – Prime Time Money Basics.

As a disclaimer, everyone should look at their own unique situation and decide how much short-term emergency savings is necessary.  For some it may be $1,000, for others, $75,000.  To get the conversation started I've come up with a list of reasons your emergency fund might just be too big:

1. It's More than 6 Month's Worth of Expenses

Most by now have heard this basic rule of thumb.  Somewhere between 3 and 6 month's worth of expenses is what you should probably aim for when saving cash for emergencies.  So I ask you, if you have more than this, why?  Why isn't that money in an asset that will appreciate more for you, like real estate or other investments?

There may be some legitimate reasons though:  You may have a history of illness in your family, or you may work in a specialized field with unemployment that is trending higher.  If that's your situation then the rule of thumb above may not apply.  Save an amount in cash that will provide you confidence you can make it through an illness or major career change.  But also consider that most non-liquid assets could be transferred into liquid assets within six months, so more than that may never be a good idea.  Your thoughts?

2. It's Not Insured

“The Federal Deposit Insurance Corporation (FDIC) preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $100,00.”  If you've got more than $100k in the bank (1) you are awesome, (2) the amount over $100k may not be insured.  If you're keeping this much cash because you think it's safer, think again.  You might as well have it in stocks with the potential to earn more.

I have a friend in the banking industry and he shared that you can have more than $100k insured by having multiple accounts in different family member's names.  So, if you're dead set on keeping it in cash, then just make sure you know the rules and you're protected.

3. You have High-Interest Debt

Your emergency fund may be too big if you have high-interest debt, like credit cards or auto loans.  Earning 3% on your cash savings isn't doing you any good if you are paying 17% interest on consumer debt.  Get rid of that debt and then begin building up an emergency fund.  Check out my post Credit Card Balance: Make Payments or Pay in Full? for more detailed information about the balance of savings and debt.

4. You have No Retirement Savings

You have $75k cash in the bank but you haven't been contributing to your company's 401k or an IRA then you're emergency fund is too big.  Your 401k (or 403b or IRA) is a great tool for securing your retirement AND deferring your taxes.  On top of that, its most likely comes with a matching contribution.  If so, then if you aren't contributing to it then you are essentially telling your employer you don't want all of your salary.  Trade the cash in for some long-term security and get your match.

5. You have No Home Equity

Building up at least 20% equity in your home ASAP is a great idea.  Getting to 20% will allow you to avoid private mortgage insurance (PMI) and will usually allow you to escrow your own property taxesand insurance.  Plus, it shows financial responsibility and commitment to your debt.  Take your cash savings and pay down that mortgage till you're at the 20% level, then begin building cash savings.

In the name of full disclosure, here's our current allocation between home equity, retirement savings, and cash:

Asset Allocation

According to my stats on the Millionaire in the Making series, the average in cash savings is $38,569.76, while retirement and home equity averages are $180,434.75 and $210,635.42, respectively.

In my opinion we should probably shoot to have a larger percentage in retirement money even though we line up with the future millionaires.  What are your thoughts on our allocation?

6. You Have One.  Period.

Wait…what?  That's right, some believe you shouldn't have much money in cash at all.  Check out Lazy Man and Money who explains “Why I don’t have an Emergency Fund.”  Lazy Man uses his HELOC as his emergency fund.  I think if you look at the math of Lazy Man's suggestion it's a sound idea.  However, for me, my heart tells me to have some “cash in the bank” for my rainy days.  Another post on this method is Quest for Four Pillar's Reasons Why Your HELOC Can Be Your Emergency Fund.

If you do have a big emergency fund (>$5,000), consider EverBank, they have a high minimum requirement but they pay one of the best interest rates.

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Last Edited: July 24, 2017 @ 1:55 pm
About Philip Taylor

Philip Taylor, aka "PT", is a former practicing CPA, blogger, podcaster, husband, and father of three. PT is also the founder and CEO of FinCon, the conference and community dedicated to helping other financial influencers and brands. He created this website back in 2007 to share his thoughts on money, hold himself accountable, and to meet others passionate about moving toward financial independence.

PT uses Personal Capital to keep track of his financial life. This free software allows him to review his net worth regularly, analyze his investments, and make decisions about his financial future.

PT keeps a portion of his emergency fund in Betterment, the automatic investing tool that makes investing super simple. Betterment focuses on what matters most: savings rate, time in the market, investing costs, and taxes. PT recommends this service to anyone looking to get started investing for themselves.

All the content on this blog is original and created or edited by PT.


  1. Morgan at says:

    I have a lot of trouble with emergency funds because i cannot define an emergency. Is the washer breaking down an emergency, new brakes for the car? We have a great deal of debt that we are climbing out of and emergency funds for us seem to evaporate because every day occurrences become emergencies. I wonder if, at my age, 53, having safety nets (e.g. a credit union line of credit for $1,000) for emergencies is a better bet and focus on getting rid of our debt.
    Suggestions welcome.

  2. Lazy Man and Money says:

    In this market it’s probably not so smart to go with the HELOC-only emergency fund. Still I think if you are diversified in a number of other investments that you can liquidate in a few days, it might still work out.

    Nowadays, I have a bit of an emergency fund – it’s more savings for a future house, but it works as an emergency fund.

  3. @AJC – As long as those “assets” are liquid or quickly converted, I agree. But I’m not counting on my 401k (a great asset) for emergencies.

    @Shanti – I’m jealous. We’re still a few months away from being rid of our bad debt.

    @Mike – You should do a quick post on your change.

  4. Shanti @ Antishay says:

    This is a great post. My emergency fund right now is so small! But I am very close to being debt free (!!!!), at which point it will begin to grow rapidly. Thank you for this post… I need to forward it to my boyfriend whose fund is most definitely too big 😛

  5. AJC @ 7million7years says:

    Don’t need one if you have enough assets behind you, a LOC (just in case … actually, I use mine for stock investments, but would cahs out in an ’emergency’), and you obey the 20% Rule on your own house.

  6. Four Pillars says:

    Thanks for the link PT.

    Interestingly enough, my thoughts on an emergency fund have changed a bit recently. The Canadian government introduced a new type of savings account where you can save money and any income etc are tax free. Taxation on interest from emergency funds was one of my main arguments against having an emergency fund.