Key takeout
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The Emergency Fund provides financial protection against medical expenses, car repairs, or unexpected expenses while unemployed.
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It is often recommended to save 3-6 months’ worth of important expenses, but individual circumstances may require more or less savings.
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Using strategies such as savings automation and budgeting and savings windfall (such as tax refunds and bonuses) can help you launch, grow, and rebuild your emergency funds.
Let’s say one day you’re unexpectedly called to your boss’ office and you’re given harsh news that you’re being fired. When you think about bills, when you think about putting food on the table, it brings panic.
That’s a situation that many of us fear. Unexpected events like unemployment, medical emergency, and car repairs can occur to anyone without warning or time to prepare. However, there is one hack that you can feel at ease ahead of these events. I have an emergency fund.
Emergency funds aren’t just about money. Knowing that you know there is a safety net to catch you in case you trip, that’s not to worry constantly. However, only 41% of Americans could afford to cover more than $1,000 in their savings, according to Bankrate’s 2025 annual emergency savings report.
If you find yourself feeling uncomfortable with your emergency savings or completely lacking emergency funds, here are some ways to launch an emergency fund and raise financial concerns.
What is an Emergency Fund?
An emergency fund is bank account money set aside for unplanned expenses, such as unexpected dental bills or repairs to your home or car. Emergency funds can also help you survive losses in income from unemployment and extended illnesses.
Emergency funds, which act as financial cushions, help you to make breathing easier, knowing that you can handle the curveballs of your life without having to worry about debt. It reduces the need to rely on a high-profit credit card or costly personal loan to pay for sudden costs.
Essentially, unplanned costs are unexpected, so the sooner you are ready, the better you get when something inevitable happens.
– Greg McBride, CFA, Bankrate Chief Financial Analyst
Why is the emergency fund so important?
Emergency funds are an important part of a solid financial planning. It helps you pay unexpected expenses and avoids taking on debts from high profit cards or loans.
Without sufficient emergency savings, it can also cause a sense of financial anxiety. According to a Bankrate survey, half of Americans (59%) are uncomfortable with emergency savings levels, and 46% of Americans are extremely worried that they will not be able to cover their immediate living expenses next month if they lose their jobs tomorrow.
The findings reaffirm the need for households to have stashes of funded cash, and reaffirm that it is never too early to start saving for emergencies.
Without emergency funds, the only option is to ask for your credit card, personal loan, or a relative or friend for money.
How much can you save with your emergency funds?
The amount required for an emergency fund depends on your unique situation, but experts recommend saving 3-6 months’ worth of important expenses. These costs typically include housing, utilities, transportation, food and debt payments. However, individual circumstances can affect your savings goals.
Personal finance is personal. What’s right for one person may not be the best option for another person. It’s good to listen to financial experts and understand why they advocate for saving a certain amount, but ultimately what’s important is whether you’re happy with your emergency savings. That could mean two years or two months of emergency savings, depending on your goal. Unless your savings interfere with other financial goals, put aside anything you need to avoid worrying about unexpected things.
If you are self-employed, have unstable incomes, or are the only provider of your household, aim for 9-12 months’ worth of expenses to cover the gaps caused by fluctuations in income or unexpected emergencies.
For example, a 2023 survey by the U.S. Bureau of Labor Statistics found that the average household spends $77,280 per year on living expenses. That amount is categorized as $6,440 per month. For emergency funds, households that spend this much should save between $19,320 and $38,640. Your number may be above or below this range, depending on your budget.
Personal factors affecting the size of emergency funds
| A situation where more savings are needed | Reducing savings situations |
|---|---|
| Unstable income: Freelancers and gig workers may need extra savings to cover their costs in the late months | Minimum cost: If you don’t have monthly expenses like mortgages or car payments, fewer funds may be enough |
| self-employed: Employers face unpredictable cash flow or irregular income | No dependents: With less financial obligations, you may not need to save much in an unexpected emergency |
| High insurance deduction amount: Significant out-of-pocket costs for medical, auto repair or household emergency | Focused on debt rewards: If you have a high profit credit card debt, prioritizing less emergency savings while tackling debt can save you money |
| Getting closer to retirement: Retireers who rely on investment may need more cash to avoid withdrawing funds during market slump | Other safety nets: Access to additional resources such as partner income, family support, and other income streams |
| Dependent support: Care for children and elderly parents requires special protection against unexpected costs |
Risk of overfinancing emergency savings
A well-funded emergency savings account offers peace of mind, but too much cash in savings can limit your financial growth. A standard savings account offers low interest rates that often fail to keep up with inflation, and your money loses purchasing power over time.
It’s better to use excessive emergency savings. Paying off high-profit debts, including credit cards and loans, reduces monthly expenses and saves interest money. You can also invest surplus funds in your retirement account or diversified investment portfolio to enable your money to grow.
To avoid over-funding, check your savings regularly and adjust as costs change. Once you have funded enough savings for emergency savings, consider building long-term wealth or redirecting extra cash towards financial goals that will alleviate your future financial burden.
Where to maintain emergency funds
The best place to maintain emergency funds is in a high-yield savings account that offers easy access and pays competitive yields. Find banks and credit unions that guarantee deposits through the Federal Deposit Insurance Company (FDIC) or the National Credit Union Agency (NCUA).
Why a high-yield savings account is best for emergency funds
- Currently, Bankrate’s highest earning savings account offers APYs of over 4%, helping to grow emergency funds while continuing to access.
- Your money is protected per bank, up to $250,000 per depositor through FDIC insurance.
- Unlike CDs and investment accounts, you can withdraw your funds immediately in the event of an emergency.
- Your principal is safe from stock market volatility.
Online only banks are a good option for emergency savings accounts as they typically offer higher yields than brick banks and charge lower fees. Fees can be consumed by the emergency fund balance. This allows you to compare your savings rate and account features.
Also, you don’t have to stick to your account for a while. According to Bankrate’s latest checking account survey, consumers have maintained their savings accounts for an average of nearly 19 years. However, if your current account charges monthly fees or pays an annual rate (APY), it is apologies for your inconvenience to find a new account that offers better terms.
Measures to build an emergency fund
1. Determine the Emergency Fund’s Goals
Most experts recommend saving 3-6 months’ worth of money to build emergency savings. However, the exact amount you need should be the amount you are satisfied with if you incur unexpected costs such as medical expenses or car repairs.
To find your number, you need to look back at the budget you have created for your monthly expenses. Then multiply that number by six to achieve your six-month emergency fund goal. For most households, saving this amount takes time.
2. Make a budget and see where you can start saving more money
To find a way to save, you first need to understand where and how to use it. Budgeting helps you find ways to distribute your income more efficiently and reduce or manage your spending. Bankrate’s Home Budget Calculator helps you set your budget.
The Budgeting App is another useful tool that helps you calculate your income and expenses and provide a dashboard view of your financial situation. Once you have outlined your spending, you can know how much money you have left every week or a month after you have put your money away for the expenses. Use that extra as a starting point for your savings goal.
3. Set up direct deposits
Direct deposits deposit wages and other funds directly into your checking or savings account. This eliminates the need to manually deposit checks. However, not all funds need to be in one account.
By setting up a split direct deposit, you can direct certain amounts to emergency funds, with the rest being in your checking account or vice versa. You can also use a savings app that allows you to automatically transfer your salary percentage to your savings account.
Automating the process not only simplifies savings, but also allows you to keep track of your savings goals. If that money is automatically routed to another account, you will be less tempted to use it.
4. Gradually increase your savings
One way to increase your savings rate over time is to increase the amount you are contributing to your emergency fund by 1% or a certain amount until you reach your savings target. By increasing the increments, you can make large deposits to your savings account less noticeable.
5. Save unexpected income
Unexpected money can come in the form of tax refunds, bonuses, cash gifts, inheritance, or winning a contest.
These financial windfalls can be a big win for your emergency fund account, and you should at least allocate a portion of your unexpected income to your savings. You’ll want to do so before spending money, as it’s easy to spend and save less than you intended.
6. Keep saving after achieving your goals
It can float long enough to add to your emergency savings if you finish work due to a loss of work or illness. Some emergency situations require cushioning for at least six months. Unemployed for more than a year or hospitalized for several months is both happy to save more money from the emergency fund.
We also want to consider large and unexpected costs that could cost more, such as large-scale home repairs and car purchases that are common to your local home. In addition to covering several months’ worth of living expenses, you can work to save money due to these emergencies.
7. Use your bank account bonuses and interests to jumpstart your savings
Finally, you can use the bonus from opening a new bank account to store your money in an emergency savings. Banks often offer new customers cash incentives to new customers and open new checking or savings accounts. Currently, the bank offers a bonus of up to $3,000 to those who open a new checking or savings account or refer them to friends and family.
In addition to looking for bank account bonuses, you can increase your bank account balance by making sure you get the best profits with money. The best savings rates can often be found at online banks, but this does not have the overhead cost to maintain a branch.
It will then help you stay on track to achieve your emergency funding goals by maintaining your savings in multiple accounts designated for a specific purpose. For example, consider housing the emergency fund from the leave fund in a different account. This may help prevent emergency savings from being used for other purposes.
When to use the emergency fund?
Your emergency funds are designed to protect you from financial difficulties, but it is important to reserve it for a real emergency. Using emergency savings is a wise move.
- Unemployment or reduced income: If you are fired, work or experience reduced working hours, use emergency funds to cover essential living expenses such as rent, utilities, and groceries.
- Unexpected medical costs: Emergency funds can cover medical expenses, co-payments and deductions that are not fully covered by insurance, particularly to urgently care for the required procedures. And if you are a pet owner, don’t forget to take an unexpected trip to veterinarians and medication.
- Main home repairs: Emergency home repairs, including fixing broken furnaces and roof leaks, are good reasons to immerse yourself in emergency funds to prevent further damage or higher repair costs.
- Car repair: If your vehicle remains driveable and safe and requires emergency repairs, emergency funds can help you avoid taking on debts due to costs.
- Family Emergency: Use emergency savings to cover costs associated with unexpected events such as sudden funerals or emergency family-related trips.
Conclusion
Initiating and maintaining emergency funds is essential for financial stability and peace of mind. It covers unexpected expenses and prevents the need for high-profit credit cards and loans.
Aim to consider saving 3-6 months’ worth of living and automating savings through direct deposits or savings apps. Start small and build emergency funds a priority. That’s because it can make all the difference in an age of financial uncertainty.
Remember that consistency and patience are key to making your emergency fund successful. Save $25 a week to get up to $1,300 a year. Start where you can and gradually increase your contribution as your financial situation improves. With solid emergency funds in place, you’re confident that life will handle the financial surprises that throw your path.
Next steps: Ready to start building an emergency fund? Compare Bankrate’s best high-earning savings accounts to find the right account for your goals, or use a savings calculator to see how quickly your emergency funds can grow.