Emergency funds work best when split into three buckets based on when you need the money, according to Money Magazine.
The "available now" bucket covers day-to-day checking expenses plus three to six months of emergency reserves in a high-yield savings account (HYSA). This money stays liquid so you can access it without delays.
The "available soon" bucket holds cash for short-term goals within six months to one year. Money magazine suggests keeping this in a HYSA, a CD that matures before you need it, or a similar FDIC or NCUA-insured account with no monthly fees, no minimum balance, fast transfers, and easy online access.
The final bucket covers money you won't need for one to three years and don't want to risk in stocks. Short-term CDs and Treasury bills work here. You can build a CD ladder by choosing different maturity dates so portions become accessible at staggered times. CDs offer fixed rates but charge early withdrawal penalties. HYSAs have variable rates that can drop if the Federal Reserve cuts rates.
Money Magazine notes that CDs and T-bills lock in your interest rate until maturity, while many people find a HYSA alone sufficient. The exact split depends on your situation. Keeping too much cash idle could mean missing higher returns and delaying your financial goals.