Is It Smart to Invest Your Emergency Fund?

Do you hate leaving a large amount of cash in a savings account earning nothing? Would you rather invest a portion of that money? Is that even a good idea?

I came across an article the other day from a reputable site suggesting that you should invest a portion of your emergency fund so that it can do double duty – keep you safe and provide some earning power.

But is investing a portion of your emergency fund actually smart?

I have always been on the side of the fence that says no, you should not invest your emergency fund. I mean, an emergency fund is for emergencies. It’s not meant to make you rich. Its sole purpose is to protect your from life’s inconveniences.

But after taking a look at both sides I’m a little torn. I think for some it might make sense to invest a portion of an emergency fund and for others it makes no sense at all.

Let’s take a look at both sides.

When It Makes Sense to Invest a Portion of Your Emergency Fund

There are a few occasions when it might make sense to invest a portion of your emergency fund (I still wouldn’t do it) but I think these are usually pretty rare.

Here are a few scenarios where investing an emergency fund might make sense:

• You have a stable job
• You have low expenses
• You have dual income
• You have a large emergency fund with more than one year’s worth of savings.

Unless you have an emergency fund with more than one year’s worth of savings you need to have at least two of the other qualities. For example you are married and you and your spouse both work but have very low expenses. If one of you lost your job the other could cover basic living expenses. In this case it might makes sense to invest a portion of your emergency fund.

However if you and your spouse both work but have high expenses and less than six months’ worth of savings it doesn’t really make sense to gamble with your savings buffer.

The key here is only investing a portion of the emergency fund, not the whole thing. If you invest the whole thing you really don’t have an emergency fund at all – you have investments.

When it Doesn’t Make Sense to Invest Your Emergency Fund

I think most people fall into the category of it not making sense to invest emergency fund money. Most investments come with risk. An emergency fund is not built for risks – it’s built for security.

In the instances that

• You have an unstable job
• Have less than six months’ worth of savings
• Are the sole breadwinner
• Have high expenses

Then it doesn’t make sense to gamble with your emergency fund.

The whole point of having an emergency fund is to be prepared for an emergency. That means your cash needs to be easily accessible and liquid. When you invest your emergency fund you don’t have immediate access to it and in some cases you’ll be charged a penalty for withdrawing it.

Keeping your cash easily accessible in a savings account, for example, provides peace of mind. You know that your money is sitting there waiting for you in the event that you need it fast. Not to mention you don’t have to worry about the stock market tanking and you losing your security blanket.

Final Thoughts

Personally, I don’t really think it’s smart to invest an emergency fund. But that’s just one girls opinion.

What do you think? Is it smart to invest your emergency fund? Would you do it?