How much should I save in my emergency fund & where?

The car breaks down and needs an expensive repair. You lose your job. A family member has a medical emergency. How will you pay for these unexpected expenses? Enter the emergency fund.

This type of rainy day fund is money you set aside long before there’s an actual crisis. (Phew!) Having emergency cash in the bank could help you face emergencies without building debt, taking out a high-interest loan or paying penalties to withdraw retirement funds.¹

Don't have emergency money yet? You're not alone. If you’ve decided your emergency fund begins today, congrats! These tips can help you get started.

The emergency fund amount you’ll need depends on your situation. You can find many experts who recommend having enough savings to cover three to six months’ worth of expenses.² But your savings goal could be more depending on your situation, including your regular income and expenses.

Choose a small, achievable amount and simply get started. Can you sock away $16 per week? In 6 weeks, you’ll have $100 in savings. If you can only spare $10 per week, then you’ll have $100 in 10 weeks. Your emergency fund has begun. Now, here are some ways to keep the momentum going:

• Put your savings on autopilot: Set up an automatic savings plan to move a set amount of cash from checking to savings each month.¹
• Keep an eye on your checking account: Is there still money left over after paying the bills? If so, you could move some into savings, so you don’t spend it.
• Put away unexpected income: If you get money from things like birthday gifts or tax refunds, you could put it away to help your emergency fund grow.²
• Create an influx of cash: Have a garage sale or give up cable. Find other ways to save money fast.

When it comes to where to keep your emergency fund, it might seem like a good idea to put it in a high-yield account, like a CD, or use it to buy stocks. But CDs typically require that you lock in the money for a set amount of time, so the cash may not be available until the period ends—at least not without a penalty.³ And if you invest your emergency fund and need to access it, you may have to sell the stocks at a loss.

It may make sense to keep an emergency fund separate from other accounts, however, so you’re not tempted to dip into it. A savings account could be a good option. 

With some planning and determination, you can build an emergency fund. And once you have that stash, not only can it offer protection during tough times, but it can free you up to start saving for other goals.