Some people refuse to have a separate emergency fund because their money can grow faster in an investment or retirement account than in a high-yield savings account. They think that they can just use their credit card and sell off their investments to pay off their credit card debt.
However, relying on your investments to cover your emergency expenses comes with a number of risks and drawbacks that you wouldn’t have if you store your money in a high-yield savings account. Here are 6 reasons why you shouldn’t invest your emergency fund:
1. You’re misusing your investment or retirement account.
Selling your investments to fund emergency expenses is a huge mistake—one that fundamentally misunderstands the purpose of your emergency fund and investment or retirement accounts. People justify keeping their emergency fund in an investment or retirement account because they don’t want to miss out on earning compound interest on that money.
But your emergency fund isn’t supposed to be profitable—it’s supposed to protect you in case you experience an emergency.
Similarly, your investment/retirement accounts aren’t supposed to be an emergency fund; they’re supposed to be a place for you to keep and grow your money over decades.
You’re not supposed to withdraw money from your retirement account until you actually retire. That’s why (depending on the type of retirement account you have) there are often penalties for withdrawing money from your retirement account, even if you experience a hardship.
Similarly, any investment accounts you have besides your 401k or IRA are supplemental to your retirement accounts: You should invest money in these investment accounts when you’ve already maxed out your contributions to your retirement accounts.
One of the main purposes of your non-retirement investment accounts is to help supplement your retirement savings when you’ve maxed out your contributions to your retirement accounts, so withdrawing money from your investment accounts to cover short-term problems is dangerously close to withdrawing money from your actual retirement accounts.
Your investments are there as an absolute worst case scenario if your fully funded emergency fund runs out of money and you have no income—your investments are not a replacement for an emergency fund.
2. You risk building bad financial habits.
Even if you sell investments from non-retirement investment accounts, you just don’t want to get in the habit of telling yourself that it’s okay to sell your investments to pay off your credit card debt because you don’t have any liquid emergency savings.
If you sell your investments to pay off your emergency credit card expenses, you are starting to build a very dangerous and completely avoidable habit of touching your investments and not letting them grow. Once you start selling off investments the first time, it will become easier and easier for you to touch that money in the future—and you don’t want to do that because the purpose of investing is to create long-term growth, not solve short-term problems.
When you treat your investment accounts as a home for your emergency fund, you’re training your brain to prioritize the present over the future. That’s a habit that keeps people from building and keeping long-term wealth.
3. You risk incurring penalties or tax liabilities.
And not only does selling your investments to pay off credit card debt start a bad habit that could wreck your finances—selling your investments opens you up to penalties or tax liabilities, depending on which type of account you withdraw from:
- If you have a brokerage account, you may have to pay taxes on short-term or long-term capital gains when you withdraw your money.
- If you have a Roth IRA or Roth 401k, you may incur penalties if you withdraw your money before retirement age.
- If you have a traditional IRA or 401k, you must pay taxes on the money you withdraw, and you risk incurring a penalty if you withdraw your money before age 59.5.
The last thing you want to do in the midst of an emergency is figure out how to withdraw your money while incurring the least amount of tax liabilities possible; if you keep your money in a high-yield savings account, you won’t have to worry about the tax implications of withdrawing your money.
4. You risk selling your investments at a loss.
If you keep your money in a high-yield savings account, you don’t risk losing some of your money because of fluctuations in the stock market. Although having a diversified investment portfolio is often less risky than owning single stocks, all investments come with risks.
You could still sell your investments at a loss even if you have a diversified portfolio because you won’t have the luxury of waiting until the stock market recovers if you’re experiencing a financial emergency. And when you have an emergency expense, you need every extra dollar that you can get, which is why keeping your emergency fund in a high-yield savings account is better than investing that money.
5. You don’t have the benefit of liquid assets.
The other thing you don’t want to have to worry about in the midst of an emergency is waiting for your investments to be sold. It can take several business days for the transaction to go through when you sell your investments—that’s several business days where you don’t have the peace of mind that comes with having liquid assets that are more readily accessible in a bank account.
And the benefit of having liquid assets is more than just having peace of mind: Having liquid assets actually allows you to make ends meet in an urgent situation. If you don’t have a credit card and you need your emergency fund right now, you can’t afford to wait several days for your investments to be sold. And having liquid assets gives you more options in case there’s an issue with your credit card. You want to give yourself the most options as possible when you encounter an emergency.
6. You don’t want to be stuck with credit card debt if you don’t sell your investments.
If for whatever reason you decide not to sell your investments to pay off the credit card debt you accrued due to an emergency, then you could potentially be stuck with hundreds or even thousands of dollars of credit card debt until you pay it off over time.
Not having liquid savings to pay for emergency expenses is the most common reason why people have credit card debt, according to Bankrate. A survey by Bankrate notes that 47% of those with credit card debt are in debt due to emergency expenses, including emergency medical expenses (15%), emergency car repairs (9%), emergency home repairs (7%), or other unexpected emergencies (16%).
And 60% of those who carry a balance have done so for 1–5+ years. You don’t want to risk being put in a position where you’re likely to carry a credit card balance for years because you didn’t have liquid savings to cover your expenses.
You want to do everything you can to help your credit card work for you, not against you. If you put thousands of dollars onto your credit card without access to liquid savings, you run the risk of credit card debt hindering your financial progress instead of helping it.
How to maximize the growth of your money while still having liquid assets:
If you want to maximize the growth of your money but stilll want to have access to liquid assets, you should keep your money in a high-yield savings account. The interest you would earn if your money were in a high-yield saving account would outpace inflation: As of 2025, the United States’ annual inflation rate is 2.8%, which almost half the interest rate that you would get if your money were in a high-yield savings account. Many high-yield savings accounts have interest rates of 3.70–4.01% or more.
In other words, if you put your emergency fund in a high-yield savings account, you can still grow your money while outpacing inflation and without having to worry about any of the downsides that come with keeping your emergency fund in an investment account.
Again, the purpose of an emergency fund isn’t to be profitable—it’s to protect you in case you experience an emergency.
If you store your emergency fund in your investment accounts, you run a number of risks, including misusing your investment accounts, building bad financial habits, incurring penalties and tax liabilities, selling your investments at a loss, and not having access to liquid assets. Storing your emergency fund in a high-yield savings account mitigates these risks while still allowing you to grow your money.