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By Chris Taylor
Updated: July 14, 2020 10:50 AM ET | Originally published: April 28, 2020
Money; Getty Images

Interest rates quoted are valid as of May 1, 2020, and are subject to change. Check with each financial institution for current rates before making any investment decision.

For millions of Americans the economic disruptions caused by the coronavirus outbreak have highlighted the importance of emergency savings. One problem: With interest rates near record lows, finding a great place to keep that money is harder than ever.

Of course as jobs vanish, many of us are simply focused on how to meet next month’s bills. But statistics show those who do have a measure of financial security, have been scrambling to stash away what they can.

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Companies and consumers dumped a record $1 trillion in deposits into banks in 2020’s first quarter, according to an analysis of FDIC data by The Wall Street Journal. That was about four-times the amount deposited in final three months of 2019.

It’s likely still more Americans have been looking for places to keep savings, since the government’s $1,200-per-person stimulus checks began going out earlier this month.

There are no easy answers. Interest rates are what they are, and you are not going to find some secret option with double-digit returns. And savers beware: Options that seem attractive at first, might come with baggage like expiring teaser rates, access delays, or withdrawal penalties.

“Don’t be penny wise, pound foolish,” advises Harold Evensky, a financial planner with Evensky & Katz in Lubbock, Texas. “An extra percent return on an emergency fund is not worth the risk it will not be there when you need it. Focus on safety.”

That being said, some options for your cash are better than others, and we did a little legwork to find out what those are.

High-yield savings accounts

“High” is a relative term these days, but you can still find some savings accounts out there with appetizing yields. Many of these are from online banks, which are just as legitimate (and FDIC-insured) as their brick-and-mortar counterparts.

To wit: Marcus by Goldman Sachs (the consumer arm of the storied investment bank) is offering 1.55% APY, with no fees and no account minimums. That’s four times the national average. Other tantalizing options at 1.5% include American Express National Bank, Capital One, Barclays, Ally and Synchrony.

The advantage of a straight savings account is that you’re not locking up your money where it’s difficult to access – which, after all, is the point of having an emergency account. Such accounts are FDIC-insured, up to $250,000 per depositor, per bank, so you can be sure your money won’t vanish even in the event of economic catastrophe.

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Money-market accounts and funds

These accounts tend to offer higher rates than straight checking, but typically limit the number of monthly transfers or withdrawals. Here, too, you can find some interesting rates. Discover, for instance, is currently offering 1.25% APY, with a $2,500 minimum. Ally, in contrast, is luring savers with zero account minimums – but offering slightly less in interest, at 0.75%. You can find even better offers if you are comfortable with smaller concerns, like Minnesota-based Affinity Plus Credit Union, offering 2.02% and no minimums.

There are also money market “funds”, which can be purchased through brokerages — but as mutual funds, those money markets are not FDIC-insured in the same way that savings accounts are. They could theoretically lose value, as happened in the wake of the Lehman Brothers bankruptcy back in 2008. But the U.S. Treasury has already developed a package of measures to backstop money markets, as part of the government’s response to the coronavirus crisis.

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C.D.s

While standard savings accounts let you put money in or take it out at will, certificates of deposit work a little differently. You deposit a fixed sum for a fixed term, and enjoy relatively high interest rates as a result.

For example: Marcus by Goldman Sachs is offering 1.60% APY on 12-month CDs. Meanwhile Barclays is offering 1.40%, and Discover 1.5%, for the same term.

The potential danger of this strategy is that most CDs charge penalties for early withdrawal, if you need that money before the term is up. (Some offer no-penalty versions, but with lower interest rates). So if the purpose of your cash fund is to have immediate, unfettered access for emergencies, they may not be the right fit for you.

One creative idea is to stagger your CDs, suggests Monica Dwyer, a financial planner from West Chester, Ohio. That way you have some cash at the ready, while another portion is locked up and generating higher returns for you.

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A mixed approach

Of course, there is no law saying you have to choose only one avenue for your cash. Financial planner Joseph Stemmle of Richmond, Va., recommends a potent mixture of multiple options: “Building a three-tiered cash reserve is essential to getting your money to work harder,” he says.

“Tier 1 is one month of expenses in a checking or savings account at your primary bank, Tier 2 is 1 to 3 months of expenses in a high-yield savings account that is FDIC-insured with no minimums, and Tier 3 is 3 to 6 months of expenses in a CD, Treasuries, or short-term bonds.”

Whichever route you choose for your savings, just remember that your first principle should be: Safety first. If you reach for an artificially high yield, but end up locking it up for an extended period or putting the sum at high risk, then you are defeating the purpose of having emergency savings in the first place. If and when you find yourself in real financial crisis, that’s not a happy place to be.

More from Money:

How to Decide the ‘Best’ Way to Use Your Stimulus Check

Here Are America’s Best Banks in 8 Different Regions

Best CD Rates of 2020

(An earlier version of this story overlooked the distinction between money-market accounts and money-market funds.)