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Emergency Fund What is it and why it is important

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Emergency Fund What is it and Why It Matters

The best place to keep it is a savings account, an emergency fund is useful to cover unexpected costs.

By Margarette Burnette Senior Writer Savings accounts as well as money market accounts bank accounts Margarette Burnette has been a specialist in saving and has written about bank accounts from before when the Great Recession. Her work has been featured in major newspapers. Before being a member of NerdWallet, Margarette was a freelance journalist with bylines in magazines such as Good Housekeeping, and Parenting. She is based in Atlanta, Georgia.

Dec 21, 2021

Read by Kathleen Burns Kingsbury Wealth psychology expert and coach Kathleen Burns Kingsbury, founder of KBK Wealth Connection and host of the Breaking Money Silence podcast, is a widely known author and speaker. As an expert in finance psychology Kathleen is a regular on the television, and her work has been featured on The New York Times, The Wall Street Journal, “PBS NewsHour,” Money magazine, Today Money, Forbes and CNBC. Kathleen worked as an adjunct faculty member at McCallum Graduate School from 2009 to 2019. McCallum Graduate School at Bentley University from 2009 until 2019, and is now a professor for the Champlain College. Champlain College.

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What exactly is an emergency account?

An emergency fund is a type of bank account that has money put aside to cover the unexpected costs of a large scale, such as:

Unforeseen medical expenses.

Home-appliance repair or replacement.

Major car repairs.


Compare the best savings accounts

Find a savings account with a high yield with a good rate. Compare rates against each other.

Why do I need an emergency fund?

The emergency fund is an financial buffer that could keep you going in emergency without relying for credit or loans. It’s especially important to keep an emergency fund in place if you’re in debt as it can aid in avoiding borrowing more.

“One among the initial steps towards climbing over debt would be to provide yourself a chance to not get further in the debt cycle,” says NerdWallet columnist Liz Weston.

What should I save?

The short answer: If starting out small, put aside at minimum $500, but begin to build up to a full year’s worth of expenses.

The longer answer: The right amount for you is contingent on your personal financial situation, but a best practice is to have enough to cover 3 to 6 months’ worth in living costs. (You may require more if you work as a freelancer or seasonal worker, for example or if you lose your job would be hard to replace.) If you do lose the job you have, then you can use the money to purchase necessities until you find a new one, or the funds could be used to supplement your unemployment benefits. Start by making small steps, Weston says, but begin.

A savings of even $500 could help you avoid numerous financial squabbles. Start saving now, and build your fund over time.

Looking for the top savings choices? Here are our picks for the .

Where do I put my emergency account?

Savings accounts that have the highest interest rate and easy access. Because emergencies can strike at any time, having quick access is vital. Therefore, it should not be tied in a long-term investing fund. However, the account must be separate from the account at your bank that you regularly use, so that you don’t have the temptation to dip into your reserves.

A is a safe spot to keep your money. It is insured by the federal government up to $250,000 per depositor, therefore it’s secure. The money earns interest and you can access your cash quickly when needed either through withdrawal or a funds transfer.

Credit Card for Savings and Cash Management. Money Market

Member FDIC

SoFi Savings and Checking

APY 3.75 Per cent SoFi members with direct deposit can earn up to 3.75% annually-percentage yield (APY) on savings balances (including Vaults) and 2.50% APY on check balances. There is no minimum direct deposit amount needed to qualify for 3.75 percent APY on savings, or the 2.50% APY for checking balances. Members without direct deposit will earn 1.20 percent APY on all account balances, including savings and checking (including Vaults). Interest rates are variable and can change at any point. The rates listed are current as of 01/04/2023. Additional information can be found at

Min. balance for APY $0

Member FDIC

Marcus from Goldman Sachs Online Savings Account

APY 3.50% 3.50% APY (annual per cent yield) with no minimum balance to earn APY stated. Accounts must be in an open balance in order to stay open. APY current as of 02/07/2023.

Min. balance to APY $0

These cash accounts combine features and services similar to savings, checking or investment accounts into one product. The cash management account is generally provided by non-bank financial institutions.

The cash accounts offer features and services similar to checking, savings and/or investment accounts in one account. Cash management accounts are usually offered by non-bank financial establishments.

on the Wealthfront website.

Wealthfront Cash Account

APY 4.05 percent

Min. balance to APY $1

on Betterment’s website

Betterment Cash Reserve – Paid non-client promotion

APY 4.00 Percentage of annual percentage yield (variable) is at 02/06/2023.

Min. balance for APY $0

CDs (certificates of deposit) are a kind of savings account that has a fixed rate and term typically, they have higher interest rates than standard savings accounts.

CDs (certificates of deposit) are a form of savings account that comes with a fixed rate and term, and usually have higher interest rates than standard savings accounts.


APY 4.60%

The term 1.5 years

Member FDIC

Marcus By Goldman Sachs High-Yield CD

APY 4.40 percent 4.40% The APY (annual per cent yield) at 01/25/2023.

One year of term

Checking accounts can be used for cash deposits on a regular basis as well as withdrawals.

Checking accounts are utilized to deposit cash on a daily basis and for withdrawals.

Member FDIC

SoFi Checking and Savings

APY 2.50 Members of SoFi with direct deposit can get up to 3.75% annual percentage yield (APY) on savings balances (including Vaults) and 2.50% APY on check balances. No minimum amount of direct deposit needed to qualify for 3.75% APY for savings, and 2.50 percent APY on checking balances. Members without direct deposit will earn 1.20 percent interest on balances in checking and savings (including Vaults). The rates of interest are variable and subject to change at any time. These rates are current as of 01/04/2023. Additional information can be found at

Monthly fee: $0

Upgrade Rewards Checking


Monthly fee $0

The deposits are FDIC Insured

Current Account


Monthly fee: $0

They are FDIC Insured

Chime Checking Account


Monthly fee $0

Member FDIC

Axos Bank(r) Rewards Checking

APY 1.25% Earn monthly direct deposits that total $1,500 and more in order to accrue 0.40 percent APR. Utilize the Axos Visa(r) Debit Card for a maximum of 10 transactions each month (min $3 per transaction) or enroll for Account Aggregation/Personal Finance Manager (PFM) in Online Banking to earn 0.30 percent annual percentage. Keep an average daily amount of $2,500 on An Axos Managed Portfolios Invest Account for 0.20% APY. Maintain an average daily balance of $2,500 within An Axos self-directed trading Invest Account for 0.20% annual percentage yield. Make use of the Rewards Checking Account to pay your entire each month Axos Consumer loan payment and earn 0.15% APR.

Monthly fee: $0

Market accounts for money pay interest rates similar to savings accounts and have some features for checking.

Money market accounts pay rates that are similar to savings accounts and have some features for checking.

Member FDIC

UFB Best Money Market

APY 4.21%

Min. balance to APY $0

Member FDIC

Bank Money Market Account – Discover Bank Money Market Account

APY 3.20 percent

Min. balance required for APY $1

How do I build an emergency cash fund?

Calculate the total that you wish to save. Utilize the following formula if need help figuring out the expenses you will incur for six months.

Make a goal for your savings each month. This will get you to save often and makes the process less difficult. One method to accomplish this is to automate the transfer of money to your savings account every when you are paid.

Transfer money to your savings account automatically. If your employer allows direct deposit, there’s a great possibility that they will divide your paycheck between multiple checking and savings accounts so that your monthly savings goal is taken care of without touching the checking accounts of your account.

Save the change. Utilize mobile technology to save automatically every when you purchase. It is possible to link checking accounts and other accounts to round up purchase amounts on your transactions. The excess amount is then transferred to a savings account.

Make sure you save any tax-free refund. You can only get this every year- and only if you anticipate to receive a tax refund. It can be an easy way to build your emergency fund. When you file your taxes, think about having your refund directly deposited into your emergency account. Alternately, you could think about adjusting your to have less money to withhold. If altering your deductions are an option that is suitable for you, you could transfer the extra cash to your emergency reserve.

Assess and adjust contributions and adjust. Review your contribution after a couple of months to assess the amount you’ve saved, and then adjust as needed particularly if you’ve recently drained money from your emergency fund. However If you’ve saved enough to be able to cover the cost of six months of expenses , and have cash left over, you might consider investing those funds instead.

>> Here’s what to do if you think you might have

When you’re saving money, draw a line between emergencies and other. If you’ve hit a reasonable threshold of emergency savings Weston suggests it’s a good idea to open a second savings account to save for sporadic but essential items such as car repairs, vacations and clothing. If you need help staying organized, many banks allow customers to create and label sub-accounts to meet different financial goals.

Everyone needs to save for the unexpected. A reserve fund can mean the difference between weathering an economic storm that is short-term or slipping into deep debt.

Utilize this calculator to begin. It only takes a few minutes:

From top to bottom

Author bios: Margarette Burnette is a savings account specialist at NerdWallet. She has had her work featured in USA Today and The Associated Press.

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