Emergency fund

How it works

An emergency fund has two different jobs. One is covering a sudden bill: a repair, a medical cost or an unplanned trip. The other is carrying ordinary bills through a stretch without your usual pay, after a job loss or a cut in hours. Without a cushion, the gap can end up on a credit card or a loan, and that debt, with interest, can be harder to pay off.

There is no single right amount. A useful first goal can come from your own history: the surprise expenses you have had before and what they came to. Some people set a longer-term target as a number of months of essential expenses, such as housing, food, utilities, insurance and minimum debt payments. How many months fits depends on how steady your income is and who relies on it.

Because the money may be needed on short notice, it helps to keep it somewhere easy to reach and unlikely to lose value. A savings account at a bank or credit union can fit that job: these institutions are generally regarded as among the safest places for cash, and a separate account keeps the fund apart from spending money. Using the fund for a real emergency is what it is for; afterward, the next step is rebuilding it.

Related terms

Sources and further reading

• CFPB: An essential guide to building an emergency fund
• U.S. Department of Labor: Savings Fitness

Examples are illustrative and focus on U.S. personal finance. This page is educational, not individual financial, investment, tax, or legal advice. Read our editorial approach or report a correction.