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Saving for an Emergency

Create a financial safety net.

Create a financial safety net.

Saving for a rainy day is just as important as saving for a specific goal. This is the best way to protect yourself financially in case of illness, injury, or other unexpected events.

How much do you need for an emergency?

It's a good idea to keep three to six months of essential living expenses easily accessible in case of an emergency. Keep in mind that you may want to save even more in your emergency fund if you might be changing jobs within the next year or are anticipating any other significant life changes.

How to Save for an Emergency Fund

How to Save for an Emergency Fund

Watch video: How to Save for an Emergency Fund

On this episode of Personal Finance 101, we take a closer look at what factors to consider when saving for an emergency fund.

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video

transcript

Saving for an emergency fund is one of the most important savings goals.

It's the best way to protect yourself financially in case you have a medical emergency, car

troubles, or lose your job.

So how much do you really need for an emergency fund?

It's a good idea to keep three to six months' worth of essential living expenses in an account

that is safe and easily accessible.

Essential living expenses can vary depending on your situation, but typically include monthly

housing costs, loan payments, food, childcare, insurance, and transportation costs.

This doesn't mean expenses you can live without like going to the movies, eating out,

or fancy shoes.

You may need even more in your emergency fund if you are self-employed, are a single income

household, might be changing jobs within the next year, or are likely to experience significant

changes in your income or expenses.

And where should you deposit your emergency fund?

In order to have fast access to emergency cash, keep it in something safe, low risk

and liquid like: Interest-bearing checking accounts, money market savings accounts, money

market funds, or short-term CDs.

Best-case scenario, you'll never have to touch your emergency fund.

But if the day comes when you actually do need it, you'll have some much-needed peace

of mind, so you can devote your energy toward solving the emergency, rather than scrambling

to pay your bills.

To learn more about how to take control of your financial future, check out the other

videos in our Finance 101 series.
 

Where to deposit your emergency fund.

In order to have fast access to your emergency cash, keep it in something safe and liquid such as one of the following:

  • Interest-bearing checking accounts may provide a slightly lower yield than money market funds, but you can write checks for any amount and may have easy ATM access to cash. And they're FDIC-insured up to $250,000 per account holder, per bank.
  • Money market savings accounts may offer limited checkwriting privileges (over certain minimums) while generally providing higher yields than a checking account. Often the number of withdrawals is limited.
  • Money market funds typically pay more than bank accounts (checking and savings accounts). While money market funds are considered to be a stable investment, they are not FDIC-insured, and it's possible to lose money invested in a fund.
  • Short-term CDs are also FDIC-insured up to $250,000, and CDs typically offer higher yields than money market funds or interest-bearing checking accounts. Although money invested in a CD is locked up until it matures, you can always withdraw early and pay a penalty if you really need the cash.

A home equity line of credit can also be a good backup in case of emergency. However, it should always be used cautiously and only if you've built substantial equity in your home. Also, you can borrow against it when needed.

The cost of not having an emergency fund

The cost of not having an emergency fund
  • If you...
  • Then you...
  • If you...
    Withdraw 401(k) money before you’re eligible
  • Then you...
    Pay early withdrawal penalties (10% or more)
  • If you...
    Live off credit cards
  • Then you...
    Pay up to 18% interest (or more)
  • If you...
    Postpone monthly payments
  • Then you...
    Pay late penalties; damage credit rating
  • If you...
    Sell securities
  • Then you...
    Lose money if it’s a bad time in the market

© 2024 Charles Schwab & Co., Inc. All rights reserved. Member SIPC. 

To make sure you're getting the best value

To make sure you're getting the best value, do some comparison shopping when choosing a bank or financial institution for your emergency fund. Review and compare the following:

  • Minimum balance requirements
  • Service fees
  • Interest rates
  • How often the bank pays interest

And be sure the bank you choose is FDIC-insured. Learn more about the types of accounts available.

Money market funds are neither insured nor guaranteed by the FDIC or any other government agency. Although the fund may seek to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.

1. With home equity loans and lines of credit, the financial institution will take a deed of trust to secure the debt. You could lose your home if you do not meet the obligations in your agreement with the financial institution.
 

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This information on this website is for educational purposes only, and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, you should consult with a qualified tax advisor, CPA, Financial Planner, or Investment Manager.

Charles Schwab Foundation is a 501(c)(3) nonprofit, private foundation funded by The Charles Schwab Corporation. It is not part of Charles Schwab & Co., Inc. or its parent company, The Charles Schwab Corporation.

© 2025 Charles Schwab & Co., Inc. ("Schwab"). All rights reserved. Member SIPC.

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