To me, it's an emergency fund. I don't really care about earning money on it. I do care about it being easily accessible and that I can count on it staying the same balance, regardless of world events.

I actually invest mine. Seen too much "emergency fund" money sit idle for decades. My answer might change if I feared for job security or lacked sufficient insurance coverage.

By investing the money, all that means is it is subject to same fluctuations as everything else.

Numbers.... Let's say you have $100,000 in non retirement assets.. and you want $30,000 designated as emergency fund. You could invest $70,000 and then earn that safe 1% on the other 30k.. which is safe and prudent. But why? At the end of the day, what you need is access to $30,000 (or at least psychologically you think you do).

Let's say I'm taking this position in mid 2008, and you lose half of investments over the next 18 months. You are now down to net worth of $50k vs $65k if you left the cash alone. I'm ok with that risk given the long term statistics... But if you don't sleep well without segregating that money... Then 1-1.7% is near the top right now from what I've seen.

On a side note.. part of my philosophy comes from years of experience. I've found that people set aside that emergency fund... But they then freak out if they need to use it. Instead, they request liquidation of investments for unexpected expenses. When I ask what about their emergency fund, they say that can't touch that because it's there for unexpected expenses?!? It is truly one of the more universal and perplexing individual behaviors I've witnessed throughout my career... And has contributed to my personal philosophy.

I acknowledge my comfort level in this won't be for everyone.

I bought a boat with my emergency fund. If we have a flood, it is going to work great for that emergency.

Someone told me that I needed to diversify my funds, so I bought a second boat.

I think it really depends on how much money you make vs. your necessity expenses.

If you're investing several thousand dollars monthly, have healthy credit, and are generally financially responsible, then it may not be necessary to have much of one at all. If you are just scraping by and having to replace a broken AC unit means you're drawing an amount of high interest credit that it's going to take you half a year to pay back down, it's probably a good idea to work to put away several thousand dollars to use in case of emergency.

The other consideration if what if you lose your job in a market that's way down? It seems there should be some strategy to get by for a few months without liquidating investments a major loss to pay for routine living expenses.