Emergency Funds: Why, Where, and How Much
Emergency funds are the backbone of strong personal financial plans. Learn why you need emergency savings, where to put the money, and how much you need.

Managing your budget can be stressful, especially if you have an unexpected emergency pop up. Fortunately, there’s a way you can prepare for unexpected financial emergencies.

By building up a savings buffer—called an emergency fund—you can be prepared to pay for unexpected emergencies without having to turn to credit card debt, family loans, or other borrowing options that create unnecessary stress.

While an emergency fund won’t solve all your money problems, it’s a great start to getting your finances headed in the right direction.

Here’s exactly what an emergency fund is and what you need to know about them.

What is an emergency fund?

Before we break down exactly what an emergency fund is, let’s define what it is not:

  • It is not used for planned purchases like a house, a new car, a college education, and so on.
  • It does not have to a large, unattainable amount; it can start small.
  • It is not a set amount for everyone—it varies based on your lifestyle.

An emergency fund is money you set aside for when an emergency upends your world and you need money to do what needs to be done.

Having an emergency fund gives you the peace of mind to know that should something truly awful happen, such as losing your job, you can worry about how to deal with the emergency itself and not worry about how you’re going to survive financially.

How big should my emergency fund be?

While a person’s emergency fund will vary from situation to situation, most financial experts agree that a fully stocked emergency fund should hold between three to eight months of monthly expenses.

Dave Ramsey prefers three to six months of expenses, while Suze Orman prefers eight months of expenses in a fully stocked emergency fund.

However, you don’t need to stress out about saving three to eight months of expenses overnight.

Just getting started? Build a small emergency fund first

Starting a small emergency fund of around $500 to $1,500 is the first step to building a fully stocked emergency fund. This smaller goal is much easier to reach and allows you to feel accomplished once you reach this awesome milestone in your finances.

Once you establish the small emergency fund, you can handle life’s small emergencies without going back into debt. This allows you to focus on gaining momentum when it comes to saving money rather than switching back to focusing on paying off debt incurred by small emergencies.

How do I determine what number to use for my monthly expenses?

While monthly expenses will vary from person to person, you’re basically ensuring that you could continue to live your life without bringing in any income. Some people make sure their emergency fund can cover luxuries while others stick to a more bare-bones emergency fund that provides just enough money to pay the bills.

It’s up to you to decide which monthly expense number you want to use, but we suggest picking a comfortable number that won’t make you feel stressed out should you suddenly find yourself needing to make the cuts you’ve budgeted for. 

Why you need an emergency fund

So now that you understand what an emergency fund is, you may be thinking that they’re great for other people but you don’t really need one right now.

You may think your job is secure or you’re in a high demand field in which you could quickly find a new job. You may think using a credit card is a good enough emergency fund because you could always use a credit card with a 0 percent introductory APR on balance transfers until you pay off the debt.

Unfortunately, everyone will likely face at least a few financial emergencies in their life. Here are a few examples that should help you change your mind so you start building an emergency fund.

In case you lose your income

While most people think about being fired, that’s not always the reason you end up losing your income. What happens if you suddenly find out you need to move across the country to help care for a family member because they fell and broke a hip?

What would happen if your company suddenly gets bought out by a larger company, your department becomes redundant and you get laid off?

What would happen if the economy suddenly crashes over the next six months and your line or work is no longer in high demand? These are all real situations that could happen to anyone.

Medical emergencies

Of course, emergency funds don’t just cover you in the case of job loss. Other major financial emergencies can pop up as well. You may come down with appendicitis and have to pay your $5,000 deductible on your health insurance to get the necessary surgery.

Child and/or pet emergencies

What happens if your dog gets hit by a car and need $2,000 of vet care to live?

Or you may discover your child needs additional education services to help them keep up at school that cost thousands of dollars per year.

These things happen more often than you’d hope and can destroy your finances if you don’t have the cash sitting in an emergency fund to help pay for them.

What is an emergency?

Now that you understand that an emergency fund is a necessary financial tool, you need to figure out what is and isn’t a financial emergency.

Financial emergencies are unexpected major expenses that require you to use money immediately. In order to be an emergency, these expenses must be related to preserving your financial future, your health or your assets.

Here are a few examples of true financial emergencies where it would make sense to use your emergency fund.

  • Job loss
  • Unexpected medical expenses to maintain your health
  • Sudden unexpected car breakdown or accident
  • Sudden unexpected problem with a major system in an owned house such as an air conditioner, roof or electrical system
  • A family member passes away and you need to purchase last minute travel to the funeral
  • A family member gets hurt and you need to take time off work to provide necessary care

What isn’t an emergency?

While emergency funds are there to help you pay for emergencies, sometimes people stretch the idea of what an emergency is to access the cash they have put away.

Here are some examples of expenses that would not justify breaking into your emergency fund.

  • Elective healthcare such as plastic surgery
  • A great deal on a cruise vacation
  • A last-minute request for you to fly to a destination wedding
  • You want to replace your worn out carpet in your app德扑圈官方网址home with wood floors
  • Your tires wear out from normal wear and tear (this should be budgeted, not an emergency)
  • You really want to buy a new TV for the Super Bowl but didn’t save enough

Where to put your emergency fund

We like keeping our emergency fund in a high yield savings account or a money market account. This way, you have almost instant access to the money when you need it.

Additionally, high yield accounts allow you to earn at least a little bit of interest to try to ward off the effect of inflation. If you keep your money in an FDIC or NCUA insured account, your money is insured up to $250,000.

It often makes sense to keep your emergency fund at a bank separate from your main bank accounts. That way you won’t be tempted to dip into your emergency fund for everyday expenses. With that in mind, here are a few of our favorite banks you may want to consider when deciding where to keep your emergency fund.

Citi

Mortgages Forbearance vs. Deferment

Citi is one of the most respected banks in the US and they currently offer a terrific 1.00% APY on the Citi Accelerate Savings account.  There is no minimum deposit required to open an account and no minimum balance required to earn interest.

In addition to the savings account, Citi also offers High-Yield Checking account (0.60% APY) and a Priority Package Checking account that is currently persuading new customers with a $700 cash bonus.  Combine both the checking and the savings to maximize your money earned & saved.

Discover

Discover Online Savings

The Discover Online Savings Account currently offer 0.80% APY on your savings.

They compound interest daily but pay interest on a monthly basis. There are no monthly fees to have a Discover Online Savings Account and there is no minimum deposit required to open your account.

Combine all of these factors and it’s clear why Discover Online Savings Accounts are a great candidate for your emergency fund.

See bank details/apply or read our Discover Online Savings Account review. 

How to contribute to your emergency fund

Build a Bank Account Buffer™

We’ve written in the past about 6.5 half steps to financial stability. The first and arguably most important step is to build a bank account buffer™ of $500 to $800.

If you’re in debt, it’s tempting to throw every extra penny towards your debt. However, it’s better the build at least a small bank account buffer™ of $500 to $800 dollars in savings before attacking your debt.

Those amounts may seem small, but when you’re in debt, they’re really not.

Moving forward, you can continue adding to your emergency fund with automatic bank transfers or a separate direct deposit of a portion of your paycheck to your savings account.

Since these actions are automatic, you won’t be tempted to skip saving for a paycheck or two. Instead, your emergency fund will grow in a disciplined manner every month.

Invest

Now that you have some money saved up, it’s time to invest and grow that money even more.

If you’re new to investing, here’s a guide to get you started.

Wondering what to do with your investments when the stock market drops?

Open up a 401(k), and if your employer matches your contributions, take full advantage. And, to help keep your 401(k) on the right track, consider using Blooom—a 4o1(k) optimization tool. Learn more about Blooom by reading our Blooom review and also get $15 off your first year of Blooom with code BLMSMART

Continue to grow your savings

As you can see in the picture above, starting an emergency fund is just the beginning of financial success. Now all you have to do is:

How to free up money to build your emergency fund faster

If you want to start building your emergency fund even faster, you have four ways to make it happen.

Cut your expenses

First, you can cut your expenses and save the money you cut out of your budget. Easy wins to help you save include cutting back on the number of times you eat out each month, negotiating your cablecell phone, and other recurring monthly bills as well as temporarily cutting back on entertainment and other luxury expenses until your emergency fund reaches a healthy balance.

Bank all windfalls

If you don’t want to or cannot cut your expenses any further, you can focus on using “surprise” or “found” money solely to add to your emergency fund.

Typical sources of “found” money are tax refunds, bonuses from work, money from selling household items you no longer need, and money you receive as gifts.

Sell things you no longer use

Deposit any available cash you have or money you can earn from selling things you no longer use around the house. You can sell items locally on craigslist or Facebook Marketplace or you could sell things online through eBay or use services like Decluttr.

Make more money

Finally, one of the best ways to grow your emergency fund is to grow your income. After all, your income potential is technically unlimited.

You could start a side hustle, pick up a part-time job, work overtime, or start a small business in your free time. If you save all of the extra money in your emergency fund, except for any money you set aside to pay for taxes on the additional income, your emergency fund should grow quickly.

Summary

If you don’t have an emergency fund, you need to start building one today. Open a savings or money market account at Discover or CIT Bank and make your first deposit today. Work to cut your expenses, save “found” money or build extra income streams to build your emergency fund as fast as possible.

Read more

Related Tools

About the

Total Articles: 61
Lance Cothern is the founder of Money Manifesto, a personal finance blog that helps people to master their money so they can live their ideal life. In addition to blogging, he enjoys spending time at the beach with his wife and son. You can connect with Lance on Twitter, Facebook, Pinterest and Reddit. Feel free to choose from the attached images.

Article comments

We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their s; they do not represent the views or opinions of Money Under 30. Comments have not been reviewed or approved by any advertiser, nor are they reviewed, approved, or endorsed by our partners. It is not our partner’s responsibility to ensure all posts or questions are answered.
43 comments
Morgan says:

Thank you so much for this article! I’m 2 years out of college and am trying to build up my emergency fund but had no idea what the ideal number I should save up to would be. I was able to use the emergency fund calculator to give me a good estimate. Lots of good tips here as well. Thanks again!

Reply
vera says:

what interest rate is offered for a standard savings account specifically for emergency funds?

Reply
M. Ro. says:

Personally, I think in this day and age any CD is a total waste of time. Right now, Ally bank is offering “high yield” CD’s at 1.05%. This is one of the best rates in the banking business right now. If I tie-up $10,000 in one of these CD’s for 12 months, I earn $105.55. I could have also earned $105 by playing a $1 scratch off, selling a dusty bike from the basement, or cashing in on a year’s worth of loose pocket change. Unless you are dead set on not touching that money at all and you honestly think $105 in compounding interest in a year is worth the time to even set it up, then by all means, continue to use CD’s.

Reply
matt says:

i make 14 dollars an hour i work full time and have about 300 dollars a month in bills how much can i save after gas food etc…

Reply
Bob says:

Matt,

With an income close to $28000/year($14/hour), after deductions, assuming you are a single, you should be talking app德扑圈官方网址home a $1800 paycheck every month. Try to save 6 month worth of expenses as an emergency fund. I suggest you stash aside $4000. If you put aside 20% of your income it should take you about a year to get there.

Reply
danny says:

for example, If I had collected an amount of emergency fund and then in the end of the year it is still being unused (although that seem very impossible), what is the best possible suggestion that you can give so that the emergency fund can be productive toward my financial stability?

Reply
Jaime says:

Typically how fast should you build up your emergency fund? What % of your excess income should go towards it?

Reply
Leah Hart says:

I have 30K in my savings and spend from my checking where I only keep 2000 for living expenses the rest of my paycheck I move to the savings account. My employer matches contributions up to 3% on my 401k where I set 5% of income I just started this a year ago and have 10k here.
My question is how can I make my savings grow faster, but still have access to some of it without huge penalties instead of keeping all my money in savings where I only earn a lil bit more than nothing!

Reply
jim says:

Leah,
Roth IRA – in mutual funds. You can take out whatever you contribute anytime without penalties (you just can’t withdraw what you make on the account).

Reply
Anthony says:

Im 27 and Started a new job last summer. It was fine at first, but after a few months I started to question the stability of the company. I figured it was in my best interest to start an emergency fund–just something to pad my income if I had to go on unemployment. Boy am I glad I did…I was recently given a 60 day layoff notice since my company is going out of business. I have close to $3,000 saved so far, and will hopefully have around $5,000 by the time I am laid off. I can sleep at night knowing that I have that money in the bank…

Reply
Robin Williams says:

With the worldwide economic crisis, people lose job everyday and even if we are confident about our income today, but never sure what tomorrow could bring. Saving money entail great advantages for our personal finance in the long run.

Reply
Colin says:

I don’t understand the “you shouldn’t maintain your mutual fund in stocks, CDs or bonds” arguement. I mean most brokerages you can link your checking or savings account right to your brokerage account so if you need the money, you sell the investment and it’s either in your account that same day (if made a few hours before market close) or the next day…or maybe my brokerage is just really speedy.

Yes, I can understand keeping some cash for IMMEDIATE immediate needs, but it’s not like there are many scenarios where you absolutely need to make the payment that exact date. With checks it may be days before the check is cashed (depends on how quickly it gets cashed) and if you really need to delay paying something, charge it to your credit card so you have an interest free loan for a few days to a month (depending on the billing cycle)…though it’s only interest free if you pay off the credit card charge at the next statement date if you’ve made money available.

But again, I still stress that there aren’t many things out there that require payment the day of that emergency. Things like car repairs, rent, etc can be charged to a credit card and paid off at the next statement.

Reply
Squirrelers says:

I too saw that story about how 1/2 of those here in the US couldn’t cover an unexpected expense of $2,000 within a month I believe. Staggering, but probably shouldn’t be surprising the more I think about it.

Personally, I think that the old formulas of keeping 3 months expenses in an emergency fund are too low. More like 6 to 9 months easily, these days and in this economy. Best to be safe, because things can and do happen.

Reply
Colin says:

I too was suprised considering that I usually have a few thousand available in my checking account available at any moment in time and sometimes keep a few hundred bucks in cash hidden away in my place.

I guess I should feel very fortunate considering then…

Reply
Hazel says:

I think 9 months is too much, because by keeping it in a bank account, you are losing money. I suggest 5 or 6 months. There is always employment insurance, and other investments or other ways you can make an income. Maybe not as much as you would be making, but still an income nonetheless.

Reply
Katie says:

Hello,

This is a great article.

I am working on establishing an emergency fund and also trying to put money away into my Roth IRA for retirement. I also want to try to set up a savings for app德扑圈官方网址home projects/vacations/etc. Is it recommended to keep one savings account and just keep building it up for all of these things or to keep seperate accounts? Also, what amount or percentage is a reasonable amount to put into each account – meaning should I only put a little away for retirement and put more in the emergency fund now?

Thank you for your help.

Reply
Jenna, Adaptu Community Manager says:

Thanks for breaking this down for me.

Reply
UltimateSmartMoney says:

I have built my emergency fund past several years. I also have a app德扑圈官方网址home equity line of credit that I can always lean on if I need money on emergency situations. Currently, I have outstanding balance on my HELOC. I’m wondering if it is a wise decision to pay off my HELOC balance with my emergency fund right now. By paying off now, I end up not paying the interest. Would you recommend this option? Thanks.

Reply
Drew says:

I’m in a somewhat similar position. I still owe on one of my cars. I want to pay it down as soon as possible to avoid the interest. I feel it is a better idea to have a 6 month emergency fund at all times. Anything I save beyond that then goes towards my car payment. Currently I am making triple car payments while conserving my emergency fund. I like having that safety net. In your case, you might be able to get away with using some of your emergency fund since you can always dip back into your HELOC. It really depends on 2 things: how much you have in the emergency fund and the interest rate on your HELOC. If you have a fat emergency fund, a high interest rate, and a stable career, then you might consider using it. However, if the interest rate is low or you have a small emergency fund, then you must look at the numbers and see how much in interest you are actually saving and is it worth it to take on the additional risk of a smaller emergency fund. A side note, I am not a big fan of HELOCs as you are basically taking a second loan on your house….so If I were you, I would avoid using it if you can.

Reply

This is a tough question that so many people have: “With extra money, should I pay down low-interest debt or stockpile savings?”

First, you need to figure out where you stand philosophically on debt. For example, Dave Ramsey hates all debt In his eyes, the answer is simple, pay off the HELOC and never look back.

Other people are fine with using debt as leverage so they can invest money and get a better return. If this is you, are you investing money in a way that will hopefully outpace the APR (interest and fees) you pay on the HELOC? If so, then OK. If not, then I would pay the HELOC off (as long as after paying it off you still have a 6-month emergency fund.)

My personal view on debt is that I want to minimize it but will consider borrowing at low rates over short terms for clearly defined goals (examples: your app德扑圈官方网址home, a college degree, or to start a business). Therefore using a HELOC or other loan as an emergency fund probably wouldn’t fit in, so I’d pay off the balance.

Reply
Vince Thorne says:

I like calling is a cash reserve, part of which can be your energency fund. With the stock market swinging like it is a person with cash can really capitalize on the downswings, while keeping the emergency fund intact. FOllow the same principles described here. just don’t stop when you have six months expenses. Keep going until you feel you have enough to retire!

Reply
missragstoriches says:

Agreed! I don’t believe you can ever have enough in emergency savings. It is something that will always have to be probably be replenished. It’s nice to have six months worth of emergency savings but wouldn’t it be nicer to have six years worth?

Reply
diane williamson says:

I am close to 71 yrs. old; retired, earn extra money, but I am taxed to death. I end up buying for and financially helping my five children and granddaughter. They are all adults, and not dependents. A 2006 equity loan just before the crash wiped out any house value. Since it was not my primary mortgage lender, I can pay my house payment, but it’s basically rent. I am nickled and pennied to death with appliance, house, and car maintenance. my basic house, utilities, med and life ins., auto expenses take up to 80% of my retirement of $3500.gross a month. I owe 100,000 on my equity, and a bankruptcy in 2007 wiped out credit card debt. That $3500. is before taxes. I spend $1000. a yr on trips to visit children and relatives. I’d surely get rid of the car, but living in CA sprawl with a poor city transportation system, is not feasible. I realize that I’m better off than many, but can’t maintain a savings account.

Reply
jim says:

Dianne,
5 kids and a granddaughter that are leaching off of you when your 70 years old? Grow a spine and tell them to grow up. NO MORE $ FOR THEM – not from you anyway. How are set up for retirement? I’m guessing not very well. You need to save for YOURSELF. Those kids of yours sound like they’re healthy and able to fend for themselves. Make them do it. You are not to be their cash cow – not at your age.

Reply
Travis says:

I’m 22 years old and currently have about $2,000 in an emergency fund. I’d like to get it up near $5,000.
I’m working full-time and living in a very expensive area (admittedly by choice). I have no debt but fter bills and other expenses I’m only able to save about $100 a month into an emergency fund.

I am concerned that at this rate I won’t get anywhere. Any tips on balancing emergency fund savings with funding an IRA as well as saving for life? I could easily jack it up a few hundred bucks, but it would be at the expense of other worthy costs. I’m a disciplined saver but want to be sure not to miss out on other things in life. Any advice appreciated!

Reply
Drew says:

Travis,

You have to look at the math. If you are only able to put away $100 per month, then you have to evaluate which is more prudent: invest in an IRA or build an emergency fund. You have to go with the emergency fund. In an IRA, the money is not liquid, you cannot touch it with out heavy penalties. You are bot missing out on much growth with only $100 a month in an IRA. Given that you have no leeway in your monthly income, wouldn’t it make more sense to have cash stashed away that you can get to in an emergency (in your case, anything over a couple hundred bucks)?

Build your emergency fund first, then build the IRA.

Reply
Monica says:

This is one why I like the Roth IRAs: because you can take the principle out without penalty after 5 years AND you can get an exemption for college expenses.

Reply
Mathew says:

You can take the principal out without penalty even before 5 years.

Reply
David Weliver says:

Travis, I agree with Drew…focus on one thing at a time. Although it’s important to start saving for retirement early, a safety net of cash is the more immediate priority. The psychology of having the single goal is helpful, too. Zone in on reaching that $5,000k mark and you’ll get there faster than you think.

Reply
Travis says:

Thanks for the advice.

I agree that having one single financial goal would be helpful in managing my budget. I don’t have an employer match, so I’m not losing that. Sounds like the best idea is to aggressively build my emergency fund until I reach my goal. Even if I wait another 1-2 years before I start saving into my IRA, it seems like I’ll still be on track to build a good retirement account. Does this sound right?

Reply
jim says:

Travis,
You are only 22 years old and already have $2000 in an ER fund????? Way to go!!!! Congrats. I agree with the others – keep your eye on the ball and get that baby up to $5000. It really will happen faster than you think. Once that is in place, get yourself a 401(k) and then automatically have15% of your GROSS put into a 401(k) or a Roth IRA – maybe split that 1/2 and 1/2. It’s not as hard as you think it will be. It hurts at first, but sooner than you know, it doesn’t even register on your radar screen. And you will be SOOOOOOOOOOOOOOOOO happy that you did that when you’re 55 years old and getting a little tired of your job. I know, at 22, that doesn’t generally seem possible – but it happens ALL the time. Just get that ER fund up to $5K and then save 15% of your gross income. You’ll have the world by the tail.

Reply
Nishi says:

First, pat yourself on your back for having $2000 socked away at age 22. But I think you need to revisit your expenses. It’s hard to say because I don’t know your salary, but you say you live in a very expensive area by choice, so I’m assuming you make a decent salary. Don’t fall into the trap of living at 100% of your income. That’s basically paycheck to paycheck. Take advantage of time and your youth to sock away as much as you can into a 401k or IRA. I wasted a good 10 years piddling around before I got serious about that.

Reply
AP says:

I find the happiest place for my e-fund is in CDs. They are safe, they grow slowly but they do grow, and there is a big fat penalty if you try to touch it ahead of time. Because think about what the purpose of this money really is – Emergencies. Some people may need to think on that word a while. Yes, emergencies are unplanned, and yes, CDs have fixed penalties for using your money at an unplanned time. Look for CDs with a reasonable penalty for early withdrawal – about 2 months worth of interest. Then don’t dump all of the money in 1 CD – do a ladder so you will have money coming due to you every few months to roll over into the next.
For example 6 month, 9 month, 12 month, 18 month, 5 year.

Reply
Chase says:

I’m actually doing something similar. Our target is $12k, so I’ve got $6k in a money market account. Each month for the next 12 months, I’m going to open a new 12-month CD with $500 (12 x $500 = $6000). That way, I’m never more than a month away from the next $500 and I’ve still got the $6k in the money market that I can use immediately if I have to. The penalty on pulling out of the CD is pennies (literally), but the interest rate is slightly higher than what my savings gets.

I’m not trying to “invest” with that money so I don’t want anything long-term…just secure and earning something slightly better than nothing. If you get something with a longer term than about 12 or 24 months, then you’d probably be better off in a riskier “investment” like a mutual fund.

Reply
Mom Equity says:

I can see in theory where this would work, but keeping track of all those CDs for a dollar or two in interest doesn’t seem worth it. Just the process of opening them probably takes enough time that you are actually losing money if you look at how much money you make per hour. On the other hand, if this system gives you peace of mind it would definitely be worth it.

Reply
AP says:

Mom Equity
I can see how it *sounds* complicated to set up, once running it runs itself and it really earns you way more than you might think for money that is otherwise going to earn nothing at all. All it takes is filling out a form and sending in a check. When the first one expires, you just roll it over into a new CD or cash it out. Your bank will mail you a form to do this hassle free. My regular savings account paid me .01 cent last month. 1 cent. And they mailed me a statement to prove it! While during that same time my CDs brought in $45. Use an online calculator to figure out what your total profit will be.

Chase – I don’t invest emergency money so I’m pretty happy with the 5 year CD. If there is ever a true emergency in my life, I do not want to also be worrying about what the market is up to with my cash!

Reply
Mom Equity says:

Haha! Hilarious about the statement printed and mailed to tell you about your $.01!!! Thanks for the advice!

Mathew says:

It sounds like you might be better off finding a higher interest rate on a savings account. $6,000 in a savings account could be earning $5 a month.

Also I am wondering how you are earning $45 a month on $6,000 of CD’s. That is about a 9% return which seems unrealistic. Maybe I am misunderstanding this somehow?

Chase says:

I use Ally and it took me about 5 minutes to set it up and fund it online. I can track all of them in one place and see how much money I’m earning each day.

Reply
Jeff says:

I want to add something that I haven’t seen anyone mention in emergency fund articles. Most banks waive monthly account fees for maintaining a minimum balance in your chequing account.

I keep my $5000 emergency fund and a $2500 buffer for expenses in my chequing account in a premium service account at TD Canada Trust ($25/month fee if the balance drops below $5000 at any point during the month). I use included services that would cost more than the $300/year fee if purchased individually (Unlimited Chequing, Drafts, debit card fees at other banks locally and internationally, safety deposit box, US$ account, Visa Infinite rewards card(similar to Visa Signature in the US).

I believe I would end up paying the $25/month anyway, so I’m earning 6% on that $5000 by avoiding the fee. That’s far better than I could do investing it in any guaranteed investment.

And the $25/month fee is enough of a stick to keep me from spending into it, but I can change my account type to something cheaper if I have an emergency that I really need to get at that money on very little notice.

Reply
Hannah says:

I have almost reached my goal of $10,000 in an emergency fund.

However, up until recently, I’ve just kind of seen my regular savings account (money marking checking account) as my emergency fund. Once I reach $10,000, should I stop there, leave that account at exactly $10,000, and open up a new (separate) savings account that is not specifically for my emergency fund? Or should I just keep dishing all my extra money into that account? Is there a point to having the emergency fund be separate when I have no intention of dipping into ANY of my savings?

When I start saving for a wedding, I can see the purpose to opening a separate account for that. But what about now, when my only goal is to save every penny possible?

I’m working at my first post-college job and am saving just under half my income monthly. I have no debt and a tiny (brand new!) retirement account.

Reply
David Weliver says:

Good question, Hannah. Personally, I just have one savings account that holds our emergency fund and additional savings. My wife and I have agreed on $30k as an ample emergency fund but we continue to autosave amounts above that balance each week in the same account. Like you, we don’t plan on touching that.

What we do that may be fairly unconventional is keep a larger-than-normal checking balance and pay for things like vacations or big purchases directly form that. If we know we have an expense coming up, we’ll keep more in checking rather than transfer it to savings or an investment account. (Mostly this is because interest rates are so low right now; if they were higher, I would likely open a second savings account for short term savings goals).

I would think that’s a good way to go for your wedding but think you’re fine with one account for now.

I do know people that have a half dozen savings accounts for different things, too, but I personally think that’s overkill.

Reply
Mom Equity says:

This is so much easier said than done! I always feel like I can “outsmart” an emergency fund, which is, of course, ridiculous. I’m having a few slow months though, and it would feel really nice to have savings that are JUST for emergencies, not that I feel like I could use for other stuff.

Reply

Cancel reply