Build your savings: emergency funds, I-Bonds, 529s

personal finance
how-to
saving
Emergency funds, high-yield savings, I-Bonds, and 529s — practical places to put money you’ll need.
Author

Lawrence Wu

Published

July 31, 2026

For the heart behind saving — and the biblical warnings about hoarding — see Saving and trusting God. This page is the practical side.

Saving Practical Tips

  1. Maximize Employer 401k Match: If your employer offers a 401k match, make sure to contribute enough to receive the maximum match. This is essentially free money that can significantly boost your retirement savings.
  2. Save for Specific Goals: Whether it’s a wedding, a down payment on a house, or another significant expense, saving towards specific goals can make the process more manageable and motivating.
  3. Utilize Tax-Advantaged Accounts: Maximize your contributions to tax-advantaged accounts like a Roth IRA. Contributions to a Roth IRA are made with after-tax dollars, but withdrawals in retirement are tax-free. Plus, you can withdraw your contributions (but not earnings) without penalty at any time, which can be helpful in a pinch.
  4. Aim to Save 15-20% of Your Income: This percentage should include any money used to pay off debt, especially high-interest debt, which can drain your resources over time.
  5. Establish an Emergency Fund: Aim to save 3-6 months’ worth of living expenses in an easily accessible account for emergencies like unexpected unemployment or health emergencies. This fund should be separate from your savings for expected large expenses.
  6. Choose a High-Yield Savings Account: Your emergency fund should be easily accessible and not subject to market risk. High-yield savings accounts, like those offered by Marcus or Ally Bank, can be a good choice. Another option is a brokerage cash management account swept into a money market fund — I keep our emergency fund in Fidelity’s CMA invested in SPAXX, which can also pay bills directly (see Frugal Professor’s guide to the Fidelity CMA). The full setup is in Set up your banking.

I-Bonds

I-Bonds, or inflation-linked savings bonds, can be a great addition to your financial strategy, especially during periods of elevated inflation. If you purchased I-Bonds between November 2022 and April 2023, they yielded a significant 6.89% interest; the rate resets every May and November, so check TreasuryDirect for the current rate. (For what it’s worth, I sold my last I-Bonds in 2024.)

Let’s look at the pros and cons of investing in I-Bonds:

  • Pros:
    • Risk-Free High Interest: I-Bonds offer a high interest rate, which is virtually risk-free. This is especially advantageous compared to other risk-free savings vehicles.
    • Inflation Protection: The interest rate of I-Bonds is indexed to inflation, which means your investment maintains its purchasing power over time.
    • No Interest Rate Risk: Unlike Treasury Inflation-Protected Securities (TIPS), I-Bonds do not carry interest rate risk. If interest rates increase, the price of your I-Bond won’t decrease.
  • Cons:
    • Access to Money: Your money is locked up for 12 months. If you withdraw your investment before 5 years, you’ll lose the last three months’ worth of interest.
    • TreasuryDirect: You must buy I-Bonds through TreasuryDirect, which isn’t the most user-friendly site.
    • Account Management: This investment adds another account to manage and track.
    • Purchase Limits: You can buy up to $10k per person per year. However, if you’re married and have a living trust, you can open three accounts and contribute up to $30k per year.

Education Savings - 529s

A 529 plan is a valuable tool for saving for education expenses. This savings plan allows your investments to grow tax-deferred, and the distributions are tax-free when used for qualified education expenses such as tuition, room and board, and textbooks.

In some states, contributions to a 529 plan are eligible for a state income tax deduction. Unfortunately, California does not offer this deduction, so residents can choose any 529 provider that best fits their needs. You could use California’s own Scholarshare plan, or opt for a 529 plan offered by a brokerage like Fidelity, Schwab, or Vanguard. This could help simplify your financial management if you already have accounts with these brokers.

A crucial factor to consider is that a 529 plan is reported as a parental asset on the Free Application for Federal Student Aid (FAFSA). This means it has a minimal effect on financial aid eligibility, reducing the potential aid package by a maximum of 5.64% of the account’s value, which is significantly less than other student assets.