In my classroom I use a large file cabinet to store all my magnetic letters. I simply used masking tape to divide the side of the file cabinet into 26 squares so that each letter has its own designated area. This solution makes it easy for the children to find the letters that they need on their own. When letters fall off by accident, I simply gather them up and toss them in a box labled "Help, I am lost!" When we have choice time I ask for a friend to sort out all the missing letters.