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Emergency Fund: What It Is and Why It’s Important

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Emergency Fund What is it and why it is important

Best kept in a savings account An emergency fund can be useful for unexpected expenses.

By Margarette Burnette Savings accounts, money market accounts, bank accounts Margarette Burnette is a specialist in saving and has written about bank accounts since before when the Great Recession. Her work has been featured in , and other major newspapers. Before becoming a part of NerdWallet, Margarette was a freelance journalist, with bylines appearing in magazines such as Good Housekeeping, and Parenting. She is based near Atlanta, Georgia.

Dec 21, 2021

Review by Kathleen Burns Kingsbury Wealth psychology expert and coach Kathleen Burns Kingsbury, founder of KBK Wealth Connection and host of the Breaking Money Silence podcast, is an internationally recognized writer and speaker. As an expert on finance psychology Kathleen is a regular on the television and her work has been highlighted by The New York Times, The Wall Street Journal, “PBS NewsHour,”” Money magazine, Today Money, Forbes and CNBC. Kathleen served as an adjunct faculty member at McCallum Graduate School from 2009 to 2019. McCallum Graduate School at Bentley University from 2009 to 2019, and is now a professor at Champlain College.

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What is an emergency fund?

An emergency fund is a bank account with money set aside to pay for large, unexpected expenses, for example:

Unforeseen medical expenses.

Home-appliance repair or replacement.

Major car repairs.


Compare the top savings accounts

Find a high-yield savings account with a great rate. Compare rates against each other.

What is the reason I should have an emergency account?

Emergency funds create a financial buffer that can keep you afloat in a emergency without relying upon credit card or higher-interest loans. It is especially crucial to have an emergency fund in case you’re in debt as it can assist you in not borrowing any more.

“One among the initial steps to climb over debt would be to provide yourself the option to not get further in credit,” says NerdWallet columnist Liz Weston.

What should I save?

The short answeris: If starting out small, put aside at minimum $500, but begin to build up to half a year’s worth of expenses.

The answer is long and complicated: The right amount for you depends on your financial circumstances A common sense guideline is to have enough to cover three to six months’ worth for living expenses. (You may require more money if you work as a freelancer or seasonal worker for instance, or if your job is difficult to replace.) If you lose the job you have, then you can use the money to cover the costs of living until you find a new one or be used to supplement your unemployment benefits. Start with a small amount, Weston says, but get started.

Even a small amount of savings will help you get out of many financial troubles. Save something now and build your fund over time.

Looking for the top savings choices? Here are our recommendations for you .

Where should I put my emergency money?

A savings account that has an excellent rate of interest and quick access. Because emergencies could strike at any moment making it easy to access your account at any time is essential. It shouldn’t be locked to a long-term investment fund. The account should however be distinct from the account at your bank that you are using every day, so that you’re not tempted to use your savings.

A is a great place for your money. It is federally insured up to $250,000 per depositor, which means it’s protected. The money earns interest and you can access your cash fast when you need it either through the withdrawal process or via a transfer.

Savings Cash Management CD Checking Money Market

Member FDIC

Savings and SoFi Checking

APY 3.75 Per cent SoFi members with direct deposit receive up 3.75 per cent annually-percentage yield (APY) on savings balances (including Vaults) and 2.50% APY on check balances. There is no minimum amount for direct deposits needed to qualify for 3.75% APY for savings, or the 2.50% APY for checking balances. Direct deposit members will receive 1.20 percent APR on all balances, including savings and checking (including Vaults). The rates of interest are variable and can change at any point. These rates were last updated on 01/04/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet

Min. balance for APY $0

Member FDIC

Marcus is a product of Goldman Sachs Online Savings Account

APR 3.50 35% 3.50% Annual percentage yield (annual per cent yield) with no minimum balance to earn stated APY. Accounts must be in an open balance in order to stay open. APY is valid until 02/07/2023.

Min. balance required for APY $0

These cash accounts combine features and services that are that are similar to savings, checking and investment accounts into one package. These accounts for managing cash are usually offered by non-bank financial institutions.

The cash accounts offer features and services that are similar to savings, checking and/or investment accounts in one product. Cash management accounts are generally offered by non-bank financial establishments.

on Wealthfront’s website

Wealthfront Cash Account

APY 4.05 percent

Min. balance required for APY $1

on the Betterment website.

Betterment Cash Reserve – Paid non-client promotion

APY 4.00 percent Annual percentage yield (variable) is at 02/06/2023.

Min. balance to APY $0

CDs (certificates of deposit) are a kind of savings account that comes with a fixed rate and term typically, they have higher interest rates than traditional savings accounts.

CDs (certificates of deposit) are a kind of savings account that has an interest rate fixed and a term typically, they offer higher rates of interest than traditional savings accounts.


APY 4.60 percent

The term 1.5 years

Member FDIC

Marcus by Goldman Sachs High-Yield CD

APY 4.40 percent 4.40% APY (annual percentage yield) as of 01/25/2023

Term 1 year

Checking accounts are utilized for cash deposits on a regular basis as well as withdrawals.

Checking accounts can be used for day-to-day cash deposits and withdrawals.

Member FDIC

SoFi Checking and Savings

APY 2.50 Members of SoFi with direct deposit get up to 3.75 percent annually-percentage yield (APY) on savings balances (including Vaults) and 2.50% APY on checking balances. No minimum direct deposit amount required to qualify for the 3.75% APY for savings and 2.50% APY on checking balances. Members without direct deposit will get 1.20 percent APY on all account balances in checking and savings (including Vaults). The rates of interest are variable and can change at any point. These rates are current as of 01/04/2023. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet

Monthly fee of $0

Upgrade Rewards Checking


Monthly fee: $0

The deposits are FDIC Insured

Current Account


Monthly fee $0

The deposits are FDIC Insured

Chime Checking Account


Monthly fee: $0

Member FDIC

Axos Bank(r) Rewards Checking

APY 1.25% Receive monthly direct deposits totaling $1,500 or more to earn 0.40% APY. Make use of your Axos Visa(r) Debit Card for a maximum of 10 transactions each monthly (min $3 per transaction) or join Account Aggregation/Personal Finance Management (PFM) within Online Banking to earn 0.30 percent annual percentage. Keep an average daily amount of $2,500 on an Axos managed Portfolios Investment Account to earn 0.20 percent APR. Maintain a daily average amount of $2,500 in the Axos Self Directed Trading Invest Account to earn 0.20% APR. Make use of Your Rewards Checking account to pay the full each month Axos Consumer loan payment to earn 0.15 percent per annum.

Monthly fee: $0

Market accounts for money pay interest rates similar to savings accounts, and come with some checking features.

Market accounts for money pay interest rates that are similar to savings accounts. They also have some checking features.

Member FDIC

UFB Best Money Market

APY 4.21%

Min. balance to APY $0

Member FDIC

Discover Bank Money Market Account

APY 3.20 percent

Min. balance required for APY $1

How can I set up an emergency fund?

Calculate the total that you want to save. Use the below if you require assistance in calculating your expenses for six months.

Make a goal for your savings each month. This will get you into the habit of saving frequently and make the task easier. One way to achieve this is to automatically transfer funds to your savings account every time you get paid.

Move money into your savings account automatically. If your employer allows direct deposits, there’s a high chance that they’ll be able to divide your paycheck between multiple savings and checking accounts, ensuring that your monthly savings goal is taken care of without having to touch the checking accounts of your account.

Save the change. Make use of mobile technology to save each when you purchase. It is possible to link checking accounts and other accounts to add up the total amount you spend on purchases. The extra amount is automatically transferred to the savings account.

Save the tax rebate. You can only get this once a year – only if you are expecting to receive a tax refund. Saving it can be an easy way to boost the emergency funds. When you file your taxes, consider having your refund transferred directly to your emergency fund. Alternatively, you can consider changing your deductions tax deductions to make sure you’re not wasting amount of money that is that is withheld. If modifying your deductions is an option that is suitable for you, you can transfer the extra cash to your emergency reserve.

Examine and adjust contributions and adjust. Check in after a few months to assess the amount you’ve saved, and adjust , if necessary especially if you’ve recently took money out of your emergency account. On the other hand, if you’ve saved up enough to cover six months of expenses , and have some extra cash you could consider investing those money instead.

Here’s the best thing to do if you suspect you could be the victim of

When you’re saving make sure you separate emergencies and everything else. In fact, once you’ve hit a reasonable threshold of emergency savings Weston says, it’s best to create a savings account for irregular but necessary items, such as car repairs holidays, clothing, and vacations. If you’re struggling to stay organized, banks often allow customers to create and label sub-accounts to meet different financial goals.

Everyone should be saving for the unexpected. The ability to have a reserve fund could be the difference between getting through a short-term financial storm or falling into deep debt.

Use this calculator to start. It only takes a few minutes:

From top to bottom

About the author: Margarette Burnette is a savings account specialist at NerdWallet. The work she has done was featured on USA Today and The Associated Press.

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