Determine where to keep your emergency fund.
In my case, I decided on simplicity. I decided to keep my emergency fund in my normal bank account which uses a debit card. I then put half of it into a 90 day Certificate of Deposit so it will earn some interest. Since I keep 4 month's living expenses in my account I wouldn't have much difficulty in an emergency unless the emergency happens right after renewing the CD. In any case 2 months should be enough time to liquidate some investments to cover the third.
For most people, the best option would be to keep the money in an interest bearing savings account however in today's barely growing economy, most earn less than 1% or they require a high minimum balance. If there is a minimum average balance and you go below that, you'll have to pay a fee. Instead of earning money you'll lose it.
Depending on the country where you live, you might have the option of transferring funds from your checking account to an online bank account that pays better. Just find out about possible fees and delays for transfers back to an account from which you can withdrawal funds.
Once I get used to the routine and see if I can increase it or at least maintain my savings, I'll decide whether or not a minimum balance account that earns interest is worth it. Unfortunately I'd need to increase my emergency savings by at least 50%. In that case, it might be better to just add another Certificate of Deposit for 90 days and just have it start a month after the first one is renewed.
What is important (at least for people with little self control), is to keep savings in an account that isn't a checking account. Perhaps not even have a way to access it by ATM card so you'd have to transfer funds from savings to checking before spending it on something that isn't an emergency.
In Mexico, inflation is at about 5% so keeping more than one month's cash in a no-interest savings account is not a good choice. After doing a lot of research I found a website run by the government called CetesDirecto. If you are a resident of Mexico, you can open an account. Cetes (Mexican equivalent of T-Bills) at 28 days is a good alternative to buying Certificates of Deposits (pagares) for short term savings. Cetesdirecto started around the end of 2010 or beginning of 2011 so I didn't know about it. In fact none of my friends knew about it when I mentioned it to them the last few weeks. That website also lets you buy bondes (5yr), bonos, and udibonos (3,10, 20 and 30 year), but none of those would be a good choice for an emergency fund.
If you lose your job you could spend the cash in your account and cancel the renewal of your CETES and then have the money available at the end of the month. You should find out what short term and low risk alternatives are available in the country that you live in. Your country might have a similar program!
Where do you keep your emergency fund?
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