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EMERGENCY SAVINGS FUND
Build an Emergency Savings Fund

Emergencies are unpredictable and can affect your financial stability in an instant. While emergencies can’t always be avoided, an emergency savings fund can help you manage unexpected events by giving you peace of mind and preventing you from going into debt.

What is an Emergency Fund?

An emergency savings account, emergency relief fund, or emergency fund is defined as a special pot of savings that’s set aside to cover unforeseen and unexpected costs.

Like any savings category, it’s never too late to begin building up your emergency fund. The important thing is to start – even starting small is a step in the right direction.

Why You Need an Emergency Fund

Why might a person need an emergency fund? In what way is an emergency fund a form of insurance? What’s the difference between an emergency fund vs a savings account?

An emergency fund is specifically used to cover or offset the expense of an unexpected situation. It serves as a safety net, only to be used when financial crises occur – and it usually kept separate from your other savings account. An emergency fund can help pay for large, unexpected expenses. Here are a few emergency fund examples:

  • Medical expenses
  • Home repairs
  • Car repairs
  • Living expenses from unemployment

How Much Should I Save?

Your emergency fund amount varies, because how much you should have in an emergency fund depends on your lifestyle, monthly costs, income and family needs, a good emergency fund ratio is to set aside at least three to six months’ worth of expenses. While this may seem intimidating, the idea is to put a small amount away each week or two to build up to your goal. You can adjust the amount as needed based on your bills, job stability or other factors.

Eight Steps to Building Your Emergency Savings

Step 5: Save Automatically

  • Once you have your goal and budget hammered out, you’re ready to begin! One of the easiest ways to save money is to set up a regular, recurring direct deposit. This means the funds will automatically be deducted from your paycheck and placed in a separate savings account of your choosing.

    Regardless of how much money you can sock away each paycheck, consider placing it in a savings account with a high-interest rate. The higher the Annual Percentage Yield – or APY – the more your savings account will earn. However, not all high-interest savings accounts may be right for you.

    For example, consider how quickly you’ll need to access those funds in an emergency. If it seems likely that your unexpected emergencies may require upfront payments, you probably don’t want to put all of your money into a high-interest savings account that has withdrawal limits and penalties, doesn’t allow check writing, or bars access to funds for certain periods of time.

    While those accounts can be a fantastic savings tool and really boost your balance, when it comes to emergency savings you will want to maintain access to at least part of your fund so that, when the worst happens, you’ll have the freedom to get the cash you need quickly.

    The important thing is to explore your options and figure out what will work best for your situation – and for the “unexpected” scenarios you’re likely to encounter. For example, if you feel unexpected home repairs are a distinct possibility, you can probably rest easy with a Certificate of Deposit (CD) and its withdrawal hold. But if you have family in another state – a child in college or an aging parent – that could require you to purchase a last-minute plane ticket in an emergency, a Money Market account or plain old savings account may be the better option.

    Set up Direct Deposit with Your First Merchants Account.

Where Should I Keep My Emergency Fund?

 

Emergency savings should be placed in an account that is easily accessible without taxes or penalties, such as a money market or interest-earning savings account.

Ready to start saving? Our bankers are here to walk you through the process. Schedule an appointment with a banker or open a savings account online.

 

FAQs

I still need help getting started – what steps can I take?
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