Where to keep an emergency fund: savings, T-bills, money market

The Federal Reserve's household survey published in May 2026 found that 63% of adults would cover an unexpected $400 expense with cash, savings or a card paid off at the next statement. The other 37% would borrow, sell something or not cover it. An emergency fund is the thing that moves a household from the second group to the first, and the question of where to keep it is simpler than it looks.

The one requirement

Fact

The fund cannot be somewhere its value can fall
An emergency fund is spent on the day something goes wrong, which is not a day of the owner's choosing. Anything that can be worth less on that day — shares, bond funds with any duration, crypto — fails the only test the fund has. The lesson on emergency funds covers how many months; this guide covers where.

The three places

Three homes for cash that must not fall
	High-yield savings account	Treasury bills	Money market fund
Can it lose value?	No	No, held to maturity (4 to 52 weeks)	Designed not to; not insured
Insurance	FDIC, $250,000 per depositor per bank	Full faith and credit of the U.S. Treasury	None; SIPC covers broker failure, not fund value
Access	Same day to next day	At maturity, or sell early through a broker	Next business day
State income tax on interest	Yes	No	Partly — depends on the fund's Treasury share
Where the rate is published	The bank	TreasuryDirect auction results	The fund's fact sheet

FDIC, TreasuryDirect, and the general rules for money market funds. Yields are deliberately not shown; they move weekly.

The tax difference, worked

Interest from a savings account is taxed by the federal government and by the state. Interest from Treasury bills is taxed federally and exempt from state income tax. For someone in the 22% federal bracket in a state with a 6% income tax, a savings account and a T-bill paying the same 4% do not pay the same.

Wealth Signal calculation

4% in a savings account keeps 2.88%; 4% in a T-bill keeps 3.12%
Savings: 4% × (1 − 0.22 − 0.06) = 2.88% after tax. T-bill: 4% × (1 − 0.22) = 3.12%. On a $20,000 fund that is $48 a year — small, and in the seven states with no income tax, zero. The rates are assumptions; the mechanism is the exemption.

The $250,000 number

FDIC insurance covers $250,000 per depositor, per insured bank, per ownership category. A single account holder with $300,000 at one bank has $50,000 uninsured; the same person with $150,000 at each of two banks has none. Joint accounts are a separate category with their own $250,000 per co-owner. Credit unions have the same limit through the NCUA.

What a ladder does

Treasury bills are bought for a fixed term. Splitting a fund across bills maturing every four weeks means some of it is always about to become cash without selling anything, while the rest earns the bill rate. TreasuryDirect can reinvest each bill automatically at maturity. It is more steps than a savings account, which is the price of the state tax exemption.

Interpretation

The differences are worth tens of dollars a year; the fund's existence is worth thousands
Between the three, on a $20,000 fund, the after-tax gap is a dinner. Between having the fund and not having it, the gap is the interest on whatever would otherwise have been borrowed at card rates — 24% on $5,000 is $1,200 a year. The choice of account is the last decision, not the first.

Savings accounts at the same bank as a chequeing account can be swept into by mistake. Many people keep the fund at a different institution for exactly that reason. It is a behavioural choice, not a financial one.

Education, not advice. This guide explains how a rule works and what it costs. It does not know your income, your state or your situation, and Wealth Signal does not publish recommendations. Tax figures are the 2026 federal amounts on the date shown in the sources. Full disclaimer.

Where to keep an emergency fund: savings account, T-bills or money market, compared