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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 8: What’s Next?

  • Once you’ve reached your goal and have enough to cover the unexpected, it’s time to think about the future. Financial experts recommend having enough cash to cover three- to six months of living expenses. If you’ve managed to save that – and a little extra – in your emergency savings account, you may want to think about further maximizing those funds – because in a year, the amount needed to cover six months of living expenses could change drastically. Your cost of living could increase, a family member could become disabled, you could change careers, or your property taxes could increase. All of these are good reasons to consider a strategy that stretches beyond your initial savings goal.

    For example, you can begin a new emergency savings goal and put the money already accrued into a CD – or choose to invest it. Most CDs require a minimum deposit amount and may offer rates contingent on the size of the deposit. The interest you earn on your deposit depends on the interest rate, the term of the deposit, and the compounding method.

    The higher interest rate of a CD means that you can see a significant boost to your emergency fund, which can help you further down the road. Just make sure you have some funds set aside that you can access quickly in an emergency, as you will not be able to access your CD balance until the term has expired.

    However, don’t be afraid to use the money if you need it. If you spend what’s in your emergency savings, just work to build it up again. Practicing your savings skills over time will make the process easier!

    If you need help building a savings strategy, visit your local, welcoming banking center, or meet with one of our attentive bankers!

    You can use our CD Interest Calculator to calculate your savings at maturity. Having trouble determining which CD is best for you? Compare two CDs.

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

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