I will come straight to the point. You need to have 6 months of expenses saved in hard cold cash that you can take out anytime you want. If you are married to a working partner then you are fine with savings of expenses for 3 to 4 months.

If you haven't yet done that please do that ASAP and make it a point that every month you put some portion of your paycheck to build your 3 to 6 months of emergency savings.

Where should you put your saings for emergency? Definitely in a saving bank account so that you can withdraw money whenever you want.

Which bank gives the highest interest rates? Well any brick and mortar bank can't match the interest rates paid by the internet banks like ING Direct because interenet banks don't have extra costs and they can afford to pay higher interests because of such savings.

As of today the interest rates are as follows:

ING Direct - Orange savings account has 3% APY.
iGObanking - Saving account has 3.28% APY
Emigrant Direct - Saving account has 2.75% APY

Compare this to the very common banking names -

Bank of America - 0.2%
Wells Fargo - 0.1 - 0.2% depending upon balance

Isn't it ridiculous to see how the big banks don't provide good interest rates for saving accounts?

Well I have my money going into ING Direct for last 3 years and I am completely happy with them.

So stash your emergency savings in an interenet bank's saving account and sleep worry free getting the peace that your dollars are working harder for you to become a rich person.

Also even though it's quite natural to worry about security of the internet banks and it might feel awkward to save your emergency funds at a place you can't visit it's perfectly fine to save your money to such banks. Security is usually as good as other bank's online features and your savings are FDIC insured (definitely check that with your bank where you open your saving account).

You can have the money flow to and from your checking account to your savings account in an internet bank. It's easy to setup and fun to do.

Happy Saving!