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

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Emergency Fund: What It Is and why it is important

It is best to save it in a savings account An emergency fund can be helpful for unexpected expenses.

By Margarette Burnette Senior Writer Savings accounts and money market accounts banks Margarette Burnette is an savings expert who has written about bank accounts since before when the Great Recession. Her work has been featured in , and other major newspapers. Prior to joining NerdWallet, Margarette was a freelance journalist with bylines in magazines like Good Housekeeping, and Parenting. Margarette is located close to Atlanta, Georgia.

Dec 21, 2021

Read 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 a widely known as a speaker and author. As an expert on the psychology of money, Kathleen is a regular on the television, and her writing has been published on The New York Times, The Wall Street Journal, “PBS NewsHour,” Money magazine, Today Money, Forbes and CNBC. Kathleen worked as an adjunct faculty instructor at the McCallum Graduate School at Bentley University from 2009 until 2019. She is currently teaching for the Champlain College. Champlain College.

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What exactly is an emergency account?

The emergency fund can be described as a savings account that is set aside to pay for the unexpected costs of a large scale, such as:

Unforeseen medical costs.

Home-appliance repair or replacement.

Major car repair.


Compare top savings accounts

Find a high-yield savings account that offers a competitive rate. Compare rates against each other.

What is the reason I should have an emergency account?

Emergency funds create an financial buffer that could keep you going in moment of crisis without relying for credit or loans. It’s especially important to keep an emergency fund in place if you have debt, because it can aid in avoiding borrowing more.

“One one of the most important steps in climbing from debt to provide yourself the option to not be further in credit,” says NerdWallet columnist Liz Weston.

What should I save?

The short answer: If starting small, try to save at least $500, then begin to build up to half a year’s worth of expenses.

The long answer is that the right amount for you is contingent on your financial situation A good rule of thumb is to have enough to cover three to six months’ worth for living expenses. (You may need more in case you are a freelancer or working seasonally, for example, or if your job would be hard to find a replacement for.) If you are forced to quit work, you could utilize the money to pay for necessities while you look for a new job or help you to pay for unemployment benefits. Start small, Weston says, but start.

A savings of even $500 will help you get out of many financial scrapes. Put something away now and build your fund over time.

>> Looking for top savings options? These are our top choices for you .

Where should I put my emergency account?

Savings accounts that have an excellent rate of interest and quick access. Because emergencies can strike at any time and access to it quickly is crucial. Therefore, it should not be tied up in a long-term investment fund. However, the account must be kept separate from the bank account you are using every day, so that you’re not tempted to dip into your reserves.

A is a great location to store your money. It is federally insured to $250,000 for each depositor, therefore it’s secure. The money earns interest, and you are able to access your cash fast when you need it either through withdrawal or a funds transfer.

Savings Cash Management CD Checking Money Market

Member FDIC

SoFi Savings and Checking

APY 3.75% SoFi members with direct deposit are eligible to get up to 3.75% annual percentage yield (APY) on savings balances (including Vaults) and 2.50 percent APY on their checking balances. The minimum amount for direct deposits that is required to be eligible for 3.75 percent APY on savings, and 2.50% APY on checking balances. Customers who do not deposit direct deposits will receive 1.20 percent APR on all balances in checking and savings (including vaults). The rates of interest are variable and can change at any point. The rates shown are current as of 01/04/2023. Additional information can be found at

Min. balance required for APY $0

Member FDIC

Marcus by Goldman Sachs Online Savings Account

APR 3.50 percent 3.50% Annual percentage yield (annual percentage yield) with a minimum balance of $0 to earn stated APY. Accounts must have an active balance in order to remain open. APY valid as of 02/07/2023.

Min. balance for APY $0

The cash accounts offer features and services that are similar to checking, savings and investment accounts into one account. Cash management accounts are generally offered by non-bank financial institutions.

They combine the features and services that are similar to checking, savings or investment accounts into one account. These accounts for managing cash are typically offered by non-bank financial establishments.

on Wealthfront’s website

Wealthfront Cash Account

APY 4.05 percent

Min. balance to APY $1

on Betterment’s website

Betterment Cash Reserve – Paid non-client promotion

APY 4.00 Percentage of annual percentage yield (variable) is at 02/06/2023.

Min. balance required for APY $0

CDs (certificates of deposit) are a type of savings account that has the option of a fixed rate and time generally, they offer higher interest rates than traditional savings accounts.

CDs (certificates of deposit) are a form of savings account that has a fixed rate and term, and usually have higher interest rates than traditional savings accounts.


APY 4.60%

Term 1.5 years

Member FDIC

Marcus is a product of Goldman Sachs High-Yield CD

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

Term 1 year

Checking accounts are utilized to deposit cash on a daily basis and for withdrawals.

Checking accounts can be used to make daily cash deposits as well as withdrawals.

Member FDIC

SoFi Checking and Savings

APY 2.50 SoFi members who have direct deposit can earn up to 3.75 per cent annually-percentage yield (APY) on savings balances (including Vaults) and 2.50 percent APY on their checking balances. The minimum direct deposit amount needed to qualify for 3.75% APY for savings, and 2.50% APY for checking balances. Members without direct deposit will get 1.20% APR on all balances in checking and savings (including vaults). Rates of interest are subject to change and can change at any time. The rates shown were last updated on 01/04/2023. Additional information can be found at

Monthly fee of $0

Upgrade Rewards Checking


Monthly fee of $0

Deposits are FDIC Insured

Current Account


Monthly fee: $0

They are FDIC Insured

Chime Checking Account


Monthly fee $0

Member FDIC

Axos Bank(r) Rewards Checking

APY 1.25% Make monthly direct deposits of $1500 plus to receive 0.40% APY. Use your Axos Visa(r) Debit Card for a total of 10 transactions per monthly (min 3 cents per transaction) or enroll for Account Aggregation/Personal Finance Manager (PFM) within Online Banking to earn 0.30% APY. Keep an average daily amount of $2,500 in the Axos Managed Portfolios Invest Account in order to receive 0.20% APY. Maintain a daily average balance of $2,500 with An Axos Self-Directed Trading Investment Account to earn 0.20 percent APY. Make use of your Rewards Checking account for your full each month Axos customer loan payment and earn 0.15% per annum.

Monthly fee: $0

The money market accounts have rates that are similar to savings accounts, and come with certain checking features.

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

Member FDIC

UFB Best Money Market

APY 4.21%

Min. balance for APY $0

Member FDIC

The Discover Bank Money Market Account

APY 3.20%

Min. balance to APY $1

How can I set up an emergency savings account?

Calculate the amount you wish to save. Utilize the following formula if need assistance in determining your expenses for six months.

Set a monthly savings goal. This will get you to save regularly and will make the task easier. One way to achieve this is to automatically transfer money to your savings account every time you receive a payment.

Move money into your savings account immediately. If your employer allows direct deposits, there’s a high possibility that they will divide your salary between several savings and checking accounts to ensure that your monthly savings goal is taken care of without touching the checking accounts of your account.

Save the change. Use the mobile device to store every time you make a purchase. You can connect with checking accounts and other accounts to round up purchase amounts on your transactions. The excess amount is then transferred into an account for savings.

Make sure you save your tax refund. It is possible to get this every year only if you expect a refund. Saving it can be an easy way to boost your emergency stash. If you have to file your taxes, think about having your refund deposited directly into your emergency account. Alternately, you could think about changing your deductions to have less money to withhold. If modifying your deductions is the best option for you, then you could direct the extra cash into your emergency fund.

Assess and adjust contributions and adjust. Inspect your contributions after a few months to assess how much you’re saving and adjust if needed particularly if you’ve recently drained money from your emergency savings. On the other hand, if you’ve saved up enough to cover the cost of six months of expenses and have some extra cash, you might consider investing those money instead.

Here’s what you should do if you think that you may have

When you’re saving money you should draw a line between emergencies and all other. In fact, once you’ve hit a reasonable threshold of emergency savings Weston says, it’s an excellent idea to begin another savings account for more irregular but essential items like car repairs or vacations, as well as clothing. If you require help to stay organized, banks often permit customers to set up and label sub-accounts to meet different financial objectives.

Every person should save money for the unforeseeable. The ability to have a reserve fund could make the difference between surviving an economic storm that is short-term or slipping into deep debt.

Utilize this calculator to begin. It only takes about a minute:

From top to bottom

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

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