Lesson 3 of 3 · 6 min
Where to keep it
Reachable in a day with nothing lost on the way. That rules out more places than people expect, equity most of all, and deposit insurance caps the rest.
An emergency fund has one job: to be there, in full, on the day you need it. That makes the return almost irrelevant and the accessibility everything.
| Where | How fast | Risk of getting less than you put in |
|---|---|---|
| Savings account | Instant | None |
| Sweep-in fixed deposit | Instant | None — only the interest reduces |
| Liquid mutual fund | Same or next day | Very small, but not zero |
| Fixed deposit, ordinary | Same day in most banking apps | None, but a premature withdrawal penalty applies |
| Equity or equity mutual funds | Next working day | Real, and worst exactly when you need it |
| Gold jewellery | Days, and at a loss | Making charges are gone for good |
Why park it somewhere that earns nothing?
KabirTara
Kabirasking
So this money just sits in a savings account earning almost nothing? That feels like a waste of perfectly good money.
Taraexplaining
It earns very little, yes. What it buys instead is certainty that the whole amount is there on the day everything goes wrong. That is what you are paying for.
Kabirasking
But I could put it in equity and pull it out on the day I need it.
Taraexplaining
You could. The trouble is when that day tends to arrive. Jobs go in the same months markets fall, so you would be selling at the worst price, with no other option open.
Kabirasking
So the low return is deliberate, not lazy?
Taraexplaining
It is the trade. You give up return and you get availability in exchange. Once that is clear, a dull parking spot for this particular money stops looking like a mistake.
One number worth knowing
- DICGC deposit insurance
- ₹5,00,000
- Typical savings account rate
- 2.5% to 4%
Per depositor, per bank, principal and interest together, across all branches of that bank. Splitting across banks increases cover; splitting across branches does not.
Low on purpose. You are buying availability, not return.
Many people split the fund: a slice in a savings account for instant access, the rest somewhere that earns a little more but is still reachable in a day without a loss. The mix is your call. Boring is the specification.
Quick check
Rohan has ₹12 lakh he wants fully protected by deposit insurance. What should he do?
Match them up
Five words from the parking-spot question
Pick a term, then pick what it actually means.
Pick a term on the left.
Check yourself
1 / 3
Kabir asks
What exactly does the ₹5 lakh DICGC figure count?
Done reading?
Saved in this browser — and finishes the course.