Keeping emergency fund cash on hand is good—but maximizing return is still important. So, how much should you have in an emergency fund?

Emergency funds are an important part of your financial plan designed to cover unexpected events like job loss, major medical bills, car repairs, home repairs — there are no shortage of financial curveballs in most of our lives. Having enough money saved in a rainy day fund will also give you invaluable peace of mind — if an emergency situation should occur, you have quick access to cash.

When it comes to emergency savings, there is no shortage of differing opinions about how much cash you should have or where it should be kept. A traditional savings account, a checking account, a money market account, or other low-risk investments that are easy to liquidate? And what is too much cash? What is too little? Can’t someone just provide the “Goldilocks” amount? Actually, there is a “just right” number—but it is highly individualized and subject to change, which explains a lot of the confusion. Where you keep you cash, however, is much more clear-cut.

What is Your Emergency Fund Goldilocks Number?

Personal Capital advises individuals to save enough cash to cover three to six months of expenses based on your average monthly spending. Narrowing that general statement requires getting personal.

First, you need to calculate your average monthly spending. This number can exclude nonessential spending, such as dining out, travel or shopping. Just concentrate on your unavoidable costs, such as housing, healthcare, transportation, food, debt or credit card payments or other expenses. Once you have a number, multiply by three, six or something in between. Picking your multiplier depends on your personal circumstances. Is your job secure? Do you have a family depending on your income? Do you have other sources of income? Are there ongoing health concerns?

If you are healthy, have a working spouse and no children, three months of savings will likely suffice. If you support children, have one income source and some health costs, six months, perhaps more, might be the right number. As your circumstances change, your savings goal may need adjustments, as well.

Once you have a well-considered, rational amount for your emergency-fund level, you’ve found your Goldilocks number.

Too Much of a Good Thing?

Resist the urge to over-save for emergencies. Specifically identifying a rational amount of emergency savings is important because holding too much cash has drawbacks. If you have cash unnecessarily tied up in emergency savings, you may be undermining your long-term goals, such as a retirement funding. It’s a balancing act.

Where Should You Keep Your Emergency Fund Savings?

While how much emergency savings you need varies depending on life circumstances, where you keep your savings is much more clear-cut. Remember that your emergency cash is a long-term investment—you may never need to use it—with a short-term access requirement.

Because of this immediate access requirement, you need a short-term investment vehicle that pays interest. There are several options, such as certificates of deposit (CDs), your bank’s checkbook-affiliated savings account, a local savings institution, a diversified bond fund, or an online cash account. We recommend choosing an account that is secure (FDIC insured), liquid (no major withdrawal or transfer restrictions), and has no sneaky banking fees. Make sure you read the fine print – you may be losing more to fees than you are earning in interest!

An online cash account, is a good place to keep your emergency funds, as it offers competitive levels of FDIC insurance, has flexible deposits and withdrawals, and no hidden fees.

Our Take

How much you have saved in an emergency fund will depend on your unique situation, but ensuring that you have a good safety net in place to cover unexpected expenses is a major pillar of any successful financial plan. A safe, liquid account is generally the best place to park your emergency savings to ensure that your cash is still working for you while remaining easily accessible.