How—and why—to set up an emergency savings account

Emergencies happen, and they can be costly. If you don’t have the cash to cover them, you may end up having to borrow the money. Here’s why you should set up an emergency account—and how easy it can be.

What’s an emergency expense?

It’s the cost of an event you couldn’t have expected to happen when it did:

• Car repair
• Job loss
• Medical emergency
• Unexpected need to travel
• Home repair

Although you don’t know exactly what will happen when, you can expect something to happen sometime. And if you don’t have the cash set aside, then you’re left borrowing from family, friends, credit cards, or financial institutions— all of which come at a cost, monetary or otherwise.

How do you get started? 

1. Set a goal for how much you need

Experts usually recommend having three to six months’ worth of expenses set aside in an emergency fund.¹ Although that may seem like a lot, consider that if you lost your job, you could be out of work for a few months. And that “home repair” could mean a broken refrigerator—or a new roof.

2. Decide how much you can save every month or every paycheck

The more money you contribute, the faster you’ll reach your goal—but how do you decide the right amount? One popular rule of thumb is the 50/15/5 rule.² This model suggests allocating 50% of your income to essential expenses, 15% to retirement savings, and 5% to an emergency fund. This plan allows you to meet your immediate needs and plan for the future before you spend on anything else.

3. Set up an account

Although you may already have a checking and/or savings account, those already have a purpose. Checking accounts are used to help you pay for your regular expenses, and your savings account is where you put excess cash that you want to be able to access quickly for expenses you don’t cover with your checking account. So that your emergency fund doesn’t get lost in your other accounts—and get spent accidentally—set up a separate savings account only for emergencies.

4. Start saving

An easy way to make sure you continually put money in your emergency account is to use automatic payroll deductions. But if you can’t do that, you can set up automatic transfers from your checking account to an emergency savings account. Then you don’t have to remember to do it every month, and you’re less tempted to spend that money on more immediate purchases. And of course, when you get a gift or a bonus, you can deposit those any time. Once you reach your goal, you can decide what to do with the amount you’re saving each month—maybe set up a vacation fund or start saving for a child’s education.

To start your emergency savings fund, sign up for a free emergency savings account today. There are no account management or distribution fees, and you can withdraw at any time. The registration process makes it easy, just follow the steps to create an account, so you’re ready when an emergency strikes.