I decided to save six months of living expenses because that's what I needed for my own peace of mind. For most single people with a steady job, three months of living expenses is typically recommended and should be sufficient.
Besides that amount, which I call my emergency fund or e-fund, I also save for travel, presents and gifts, and "tithes," which is essentially money I set aside to give away to various causes, people, etc.
Years ago, when interest rates were sky high, I jumped on the hi-yield savings account bandwagon. I opened an online only savings account and declined a debit card for it because I wanted it to be difficult for me to get that money. At the time, I earned upwards of 4% on my balances, which previously was unheard of for account balances as small as mine.Times have changed significantly and now a hi-yield interest rate might be 1.40%. Now my savings account balances are ten or more times higher than they once were, but I'm earning about the same amount in interest. That sucks.
Occasionally, I'll ladder CDs to squeeze more interest out of my accounts while keeping that money liquid, but, these days, a decent CD outside of a credit union will still only get you 1.55% for a year. What's the point!
So what's a girl to do with her rainy day fund? Unfortunately, I haven't found a satisfactory answer in my research. Money market accounts and hi-yield savings accounts will keep your money liquid yet less accessible than what you have in checking, which I think is precisely what you want. But you pay for that convenience in not-so-fabulous interest rates these days.
You could invest it, but then it wouldn't really be savings. Your savings could decrease when the market dips, but then again, you could earn way more than you would in a savings account when the market increases. Still, you lose liquidity, which is the whole point of an emergency fund.
So, while I am utterly dissatisfied with 1% interest on my savings, having being spoiled by the high rates of a few years ago, liquidity is of paramount importance to me so it's probably better to let my cash stay put where it is.
If any of you know something way better, let me know!