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Emergency Funds: Why You Need One and How to Build It
By: Conor Keenan Last updated on June 28, 2024
Conor Keenan, co-founder of CompareAccounts.com, is a notable personal finance expert, with work seen in The Wall Street Journal, CNN, Fox News, MSN and Yahoo Finance.
Editorial Independence: Our opinions, reviews, and recommendations are our own and not influenced by financial institutions or partners. Partner commissions keep our site free, but our content remains independent and is not commissioned by any partner or financial institution.
An emergency fund is a financial safety net designed to cover unexpected expenses or financial emergencies. Whether it’s a sudden medical bill, urgent car repairs, or an unforeseen job loss, having an emergency fund can significantly reduce stress and financial strain during challenging times.
Why You Need an Emergency Fund
Unexpected expenses can arise at any time, and without a financial cushion, you may find yourself facing difficult decisions. An emergency fund provides a buffer that can help you manage these situations without derailing your finances. It also offers peace of mind, knowing that you’re prepared for life’s uncertainties. Additionally, relying on credit cards or loans in emergencies can lead to a cycle of debt, especially with high-interest rates adding to your financial burden.
How Much Should You Save?
A common guideline is to save enough to cover 3-6 months of living expenses. However, this can vary based on individual circumstances such as age, job security, health conditions, and whether you have dependents. Assess your situation to determine the right target for you
How to Build an Emergency Fund
- Set a Savings Goal: Start by calculating your monthly living expenses to set a realistic savings goal. Knowing what you’re aiming for makes the process more manageable.
- Create a Budget: Look at your income and expenses to see where you can cut back. Even small savings can add up over time and contribute to your emergency fund.
- Choose the Right Savings Account: Opt for a high-yield savings account or a money market account where your money can grow but remains accessible without penalties.
- Automate Your Savings: Setting up automatic transfers from your checking account to your emergency fund can simplify the saving process. Even a small, regular contribution can build up over time.
- Monitor and Adjust: Regularly review your emergency fund and financial situation. If your expenses increase or you reach your savings goal, adjust your contributions accordingly.
Tips for Accelerating Your Emergency Fund
- Cut Unnecessary Expenses: Evaluate your spending habits and cut back on non-essential items. Consider dining out less, canceling unused subscriptions, or shopping more frugally.
- Increase Income: Look for opportunities to earn extra money, such as taking on freelance work, selling unused items, or exploring a side hustle.
- Windfalls: Use any unexpected money, like tax refunds, work bonuses, or monetary gifts, to boost your emergency fund.
- Open a New Account: Most savings accounts from big banks only offer 0.01% APY. See much higher offers on our recommended high yield savings page or check out checking accounts that offer a bonus page and use that bonus as the seed for your emergency fund.
Conclusion
Starting and growing an emergency fund is one of the most important steps you can take towards financial stability. It may take time and discipline, but the peace of mind and financial security it provides are invaluable. Begin today, and set yourself on a path to a more secure financial future.
See our recommendations for your emergency fund.
Best Savings Accounts According To CompareAccounts™
3.90% APY
on balances under $100,000
On Discover Bank's Secure Site,
Member FDIC
Best For: Online Banking Experience + Customer Service
Earn a high interest rate with this account while still being able to access your cash via debit, checks or from over 60,000 fee-free ATMs nationwide.
Discover Bank is one of the first online focused banks to offer no monthly fees and what they call "No. Fees. Period."
This means you won't pay fees for things like monthly maintenance, standard checks, a replacement debit card, excessive withdrawals and more.
Deposits are insured through the FDIC for up to $250,000 per depositor and if your balance is more than $100,000 than you'll earn 3.95% APY.
If you have any questions Discover offers 100% U.S.-based Customer Service Available 24/7.
Maintain growth with a high APY and enjoy easy access to your funds when you open your money market account today.
See Discover Bank's Secure Site For More Details.
New Bonus Offer
4.51% APY
On Raisin's Secure Site
for Customers Bank, FDIC Insured
Best For: High APY + No Monthly Fees
Customers Bank high yield savings account offers 4.51% APY exclusively through the Raisin Platform.
Using a single secure login, the Raisin Platform brings together 70+ federally insured banks & credit unions to help accomplish your savings goals.
In addition to this high APY, Customers Bank offers $0 monthly maintenance fees, unlimited withdrawals, and is insured by the FDIC for up to $250,000 per depositor.
These features plus the high APY make this account a rare offer.
Founded in 2009, Customers Bank is a super-community bank with over $22 billion in assets.
Ranked by total assets, Customers Bank is in the top 5% of all banks in America and is consistently ranked as one of the best banks in America by Forbes.
New bonus offer: Earn up to $2,000 in referral bonuses when you refer a friend who makes a qualifying deposit. See site for details.
See Raisin's Secure Site for Customers Bank For More Details.
4.35% APY
On CIT Bank's Secure Site,
Member FDIC
Best For: High APY Interest Rates + Mobile App
CIT Bank has been helping customers for over 100 years. Founded in 1908, CIT Bank is now part of First Citizens BancShares, Inc.
They currently offer 4.35% APY on their high yield savings connect account with no monthly fees.
CIT Bank’s mobile app give you 24/7 access to your savings account. It also lets you deposit checks remotely & make transfers easily. The mobile app is available for both IOS & Andriod devices.
You can open a CIT Bank savings connect account with as little as $100 and it only takes about 5 minutes to complete the sign-up process.
Deposits are insured through the FDIC for up to $250,000 per depositor and interest compounds daily.
See CIT Bank's Secure Site For More Details.
*National Savings Rate Average as published by FDIC