Emergency funds explained

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Emergency situations, such as sudden medical issues, unexpected vehicle breakdowns and repairs in the home are a fact of life. On this page, we’ll look at what exactly an emergency fund is, the pros and cons, how much emergency savings you may need and how to build an emergency savings pot.

What is an emergency fund?

An emergency fund is a savings pot that can help you cover the costs of a sudden financial emergency, such as a significant household repair, losing your job or some other unexpected expense like a vet bill. Another way to look at an emergency fund is as a safety net in case things go wrong, and it’s also often referred to as a ‘rainy day’ fund.

Why might I need an emergency fund?

If you’re reading this, it’s likely that you’re employed and have monthly bills you need to pay each month. However, imagine if you suddenly lost your job, or needed to have your roof repaired because of a leak. You’d still have to pay your bills and potentially cover the cost of an important repair.

That’s exactly why you need an emergency fund. Having a pot of cash set aside to pay for large, unexpected expenses or to cover your bills between jobs will take the pressure off and avoid the need for debt-accumulating loans.

Other examples of large, unexpected expenses where an emergency fund would prove useful could include:

  • Home appliance repair/replacement
  • Major car fixes and breakdowns

  • Unemployment

  • Large vet bills

  • Home repairs (e.g. leaking roof, broken windows, damaged guttering)

  • Broken or misplaced devices, such as your phone or laptop

An emergency fund isn’t meant for things like forgotten birthday presents or spontaneous holidays, it’s meant to act as a needed reserve in times of crisis.

How much should I have in an emergency fund?

Financial experts think you have at least three months’ worth of outgoings, or three months’ salary stashed away as a baseline for your emergency fund. The exact amount, however, will depend on a few variables.

These include:

  • Your total household expenses
  • The number of people in your household and their contributions

  • The income security of your household

Let’s say your total monthly household expenses (including any rent or mortgage payments) equate to £1,500. If we think about the three-month guideline, that means you should aim to have at least £4,500 in an emergency fund, as this would cover your bills for that period of time.

However, for the best possible protection against financial shock, experts suggest that six months’ worth of outgoings is better, meaning that if your monthly expenses are £1,500, you’d be safer with £9,000 set aside.

While this information might discourage you, having a small amount of money saved is always better than nothing. The size of your emergency fund should be realistic, and not life-limiting in your current circumstances.

Pros and cons of emergency funds

While having an emergency fund does mean that you’ll need to tie up a portion of your money each month, it also means that you’ll be well-prepared in case of financial fallout. We’ve weighed up more of the pros and cons of emergency funds below.

Advantages of emergency funds

  • You won’t need to borrow money or make difficult financial decisions
  • You’ll avoid the stress and panic of trying to find money in an emergency

  • If you exceed the six months’ outgoings target, you’ll have a small amount that you can choose to save or spend

  • In the unfortunate event that you lose your job, you can concentrate on finding a new job without having to rush into something just to pay the bills

Disadvantages of emergency funds

  • You’ll need to save a set amount of money each month
  • You’ll need to choose a savings account that allows you instant access to your cash, and these types of accounts may not typically offer the most competitive interest rates

How to save for an emergency fund

The best way to save for an emergency fund is to simply start with whatever you can manage. Calculate what you’ve spent over the last three months or so to see how much you realistically spend, and this will give you an idea of how much you could aim to save.

You can then draw up a budget plan to see how much money you’re able to comfortably save each month.

1. Calculate your expenses

If you opt for the expert-recommended approach, you’ll be aiming to have at least three months worth of expenses in your emergency fund. To start, you’ll need to know what your monthly expenses are, and multiply them by three. That will give you the baseline amount to aim for. However, if this seems too much or comes to a figure that instantly overwhelms you, just aim for a round, attainable figure. When it comes to emergency funds, something is always better than nothing.

2. Start saving

Now that you know how much you need to save and you’ve factored it into your monthly budget, you can begin to set it aside. It often helps savers to have a goal date in mind and milestones to meet.

When saving for your emergency fund, it might help to open a separate savings account that you can store the money safely in. This helps reduce the temptation to spend your pot and can even allow you to accumulate some interest on your savings.

However, it’s important that you can get instant access to your cash in the event of an emergency, so make sure that the savings account you choose doesn’t have any restrictions on when you can withdraw money.

It’s a good idea to set up a standing order from your current account to the emergency fund that is taken on the day you get paid. This reduces the risk that you’ll spend the money before you put it in your savings account, and also makes it feel more like another bill that you have already factored into your budget.

Check out our savings tips to help you boost your emergency fund.

3. Be clear about what an emergency is

If you’re building your own emergency fund or putting one together with a partner or housemate, you’ll need to have a clear plan in place (and a certain level of trust if it’s joint emergency savings). In terms of the plan, you should both agree on what exactly amounts to an ‘emergency’ – and therefore when the money in the account can be spent.

If you’re unsure about saving with someone else, you might be better off saving for yourself or seeking independent financial advice.

4. Maintain your emergency fund

The point of an emergency fund is that you’re able to protect yourself or your home in any situation. That’s why it’s essential to keep it topped up, even after you’ve already experienced some form of emergency. Unfortunately, you could even find yourself with more than one emergency to deal with.


Where should I keep my emergency savings?

After you’ve established a plan that sets out your savings strategy for your emergency fund, you’ll need to decide where you’re going to keep the money. Your best option is usually a flexible savings account, as you should avoid keeping large quantities of cash stuffed under the mattress for obvious security reasons.

When choosing the right savings account for your emergency fund, you should keep in mind that:

  • In the event of an emergency, you’ll need instant access to your money.
  • While added interest is a perk, it’s not an essential when it comes to an emergency fund.

  • You’ll want to ensure that your money is protected by the FSCS.

  • Depending on your impulse control, you might want your emergency fund to be in an account that is not with the same provider as your daily banking, so that you can’t easily transfer or spend it.

With all this in mind, a good option for your emergency savings could be an easy access account that allows you to safely stow your money and access it whenever you might need to.