Saving rainy-day funds for emergencies like car and home repairs or healthcare can help you stay out of debt and have peace of mind. An emergency fund helps create a safety net you can fall back on when the unexpected happens.
Read our guide below to learn where to keep your money in the best savings accounts for emergency funds in Canada, tips to help your savings grow and how you can be ready for life’s next unexpected—and costly—events.
What is an emergency fund in Canada?
An emergency fund is a financial safety net you can rely on if a major unexpected event happens in your life. When not being used, it can also help you earn interest and reach your financial goals. Unlike rainy-day funds that are meant for smaller, one-off expenses, an emergency fund is there to help in significant times of crisis. People commonly use emergency funds for:
Job loss
Major illness or injury
Large scale car repairs
Major home repairs
When should I use my emergency savings?
Emergency funds should be used for major emergencies and not for expenses you forgot to plan for, like birthday gifts, property taxes. If you can answer “yes” to these two questions, it’s most likely an emergency.
To determine this best list, Finder Canada analyzed 22 savings accounts across 22 financial institutions. We compared accounts from traditional banks, digital banks, fintechs and credit unions. We narrowed down the list of accounts to the top 9 by listing accounts that are available Canada-wide.
We ranked accounts based on 15 data points within five major categories. Here’s how we ranked and weighted each product:
Perks: 40% (Ongoing and promotional interest rates, return on $10,000 balance over 1 year, other tailored rewards)
The EQ Bank Personal Account works like a hybrid savings and chequing account. This interest-earning spending account pays up to 3.5% interest. There are no fees on everyday banking and no minimum balance requirements. Plus, you can apply for a Joint account with your partner or family.
$0 account fee
Get $0 transactions
$0 Interac eTransfers
Earn up to 3.5% interest on your balance
EQ Bank will refund withdrawal fees for using any ATM across Canada
No minimum balance requirement
No physical branches for in-person service
Some standard banking features not available such as overdraft protection and the option to have paper statements
You'll earn 4.5% for 5 months, and then an ongoing interest rate of 0.3%. Tangerine also offer on-going higher interest rates for existing customers, which means you can occasionally accelerate your savings with a higher interest rate.
$0 account fee
$0 transactions
Earn 4.50% for 5 months, then 0.30% thereafter interest on your balance, and 0.3% thereafter
The Simplii High Interest Savings Account is a powerful account to accelerate your emergency fund savings, especially since it has one of the best promotional offers in Canada. It earns a high promo rate of 4.25% interest for 4 months (and 0.3%-1.50% thereafter). With a $0 account fee and $0 transactions, you can look forward to saving more of your hard-earned money.
The EQ Bank Notice Savings Account offers one of the highest on-going interest rates in Canada on a savings account. You'll earn up to 2.85% - 3.00% on your savings. Plus, if you're looking to save with a family member, you can apply for a Joint account.
$0 account fee
$0 transactions
Earn 2.85% - 3.00% interest on your balance
No physical branches for in-person service
Some standard banking features not available such as overdraft protection, use of ATMs and the option to have paper statements
The Scotiabank MomentumPLUS Savings Account offers a high interest rate - especially if you take advantage of the promo rate and the tiered interest rates. Earn a savings rate of up to 5% for 3 months. Plus, enjoy free unlimited transfers between Scotiabank accounts.
$0 account fee
Earn up to 5.00% for 3 months, 0.55% thereafter interest on your deposits
You’ll get an additional load of interest at regular intervals within your first year.
$2 out-of-network ATM withdrawal fee
It takes some time to earn a higher interest rate with this tiered interest rate account
The highly-rated Neo Financial makes it easy to manage your account anytime, anywhere. With a high ongoing interest rate of 2.5%, the Neo Cash Account provides solid returns on your savings. Enjoy $0 annual fees, no minimum balance requirement and free transactions.
KOHO offers an online savings and spending account with a host of added perks, like 2.5% interest on your savings. You also get a linked reloadable prepaid Mastercard that you can use to make purchases and earn cashback on your spending. Aditionally, KOHO offers a suite of budgeting tools to help you track your spending and save more money, plus it provides access to a line of credit that you can use to build your credit history.
$0 transactions and eTransfers
Earn cash back
Earn on your savings
KOHO is an online-only bank
You'll need to upgrade to a higher cost plan to earn more interest and cashback
Functioning as both a spending and a saving account, the PC Money Account has been revamped to offer one of the highest on-going interest rates in Canada. With no monthly fee and unlimited free transactions, you can earn PC Optimum points every time you spend and earn a high interest rate of 3.1% on your savings.
No monthly fees
Earn 3.1% interest on your account balance
Unlimited free transfers and Interac e-Transfers
No minimum balance requirements
CDIC insured for up to $100,000
No way to deposit cash or cheques at ATMs
Can't order cheques
Min. Age
N/A
Account Fee
$0
Transaction Fee
unlimited
Interac e-Transfer Fee
unlimited
NSF Fee
$40
International ATM Fee
$3
5 steps to build an emergency fund
Here’s a step-by-step guide on how to start an emergency fund, or rainy-day fund.
1. Create a budget
You won’t know how much you’ll need to save for your emergency fund until you know how much you spend each month. That starts with creating a budget and tracking your bills, expenses and spending.
2. Decide how much to save
If you’re just starting your emergency fund, set a smaller goal of $500 or $1,000. Once you get there, you can set a higher goal of three to six months’ worth of expenses, depending on your needs. Determine how much to set aside each month to reach this goal.
3. Decide where you’ll keep your money
Creating a separate account to store your emergency fund means it’s separate from your daily spending account so you can afford temptation but is still easily accessible.
Start out with a high-yield savings account from a digital or online bank first, then decide if you’d like to move some of your savings into stocks once you’ve saved a nice buffer.
Just note that you won’t want to move all your funds into stocks, as you may pay a penalty when you try to access your money for emergencies. Keep all or most of your emergency fund in an accessible place.
4. Automate your savings
Set up your bank accounts so that part of your paycheque or day-to-day purchases automatically gets transferred to your emergency fund.
For example, Scotiabank’s Bank The Rest savings program lets you round up your debit card purchases to the next multiple of $1 or $5 and automatically deposits the difference into your bank account.
Other banks may let you transfer a percentage of your paycheque straight to savings. If money is tight, start with a small amount like 5%, then work your way up. No amount is too small to start saving.
5. Save away unexpected money
Boost your emergency fund by saving any extra money you receive throughout the year, such as birthday or holiday money, work bonuses, tax refunds, credit or debit card rewards and so on.
How much should I have in an emergency fund in Canada?
A general rule of thumb is to save between three to six months’ worth of expenses, while some experts suggest saving for up to 1 year. However, how much you can contribute depends on your income, expenses and financial goals, among other factors.
You can start a small emergency fund with as little as a few hundred dollars, which may come in handy for things like unexpected car repairs, pet emergencies or other essentials.
3 ways to calculate savings for an emergency fund
There’s no one-size-fits-all when it comes to calculating your emergency fund. Here are three possible methods to determine how much you need to tuck away for a rainy day.
Base method. With this method, you’d need to put away $500 to $1,000 for a few of the most common unexpected expenses, like car repairs and medical expenses.
Monthly method. Estimate your daily living expenses for one month. Multiply that amount by three or six months to have a nice cushion in your emergency fund. If your income is unstable, consider saving enough to cover expenses for six months or more.
Dave Ramsey’s emergency fund. Dave Ramsey, a finance radio show host and author, combines the base and monthly methods. He recommends starting with $700 in your emergency fund until you’ve paid off all of your consumer debt. Then, beef up your fund by saving three to six months’ worth of expenses.
Example: Emergency fund monthly method calculation
Here’s how much you might put away using the monthly method after breaking down your expenses for the month:
Category
Expenses
Rent
$1,000
Groceries
$450
Dining out
$350
Car loan
$200
Utilities
$150
Miscellaneous expenses
$150
Car insurance
$100
Cell phone bill
$75
Car fuel
$50
Subscriptions
$30
Total expenses
$2,555
If your goal is to have three months’ worth of expenses stored away, you’d need $7,620 ($2,540 x 3) in your emergency fund. For a more conservative savings plan of six months, you’d need $15,240 ($2,540 x 6).
What if I’m living paycheque-to-paycheque?
If money is tight, it might be hard to find some extra cash to support your emergency fund. Instead, focus on what you can save, rather than what you should save.
Here are four tips to try to expedite your savings goals:
Evaluate your monthly budget. Take a hard look at your spending and see if there are any areas that you can slim down on your budget, like dining out or subscriptions. Reallocate those funds toward savings.
Try different savings strategies. Experiment with different savings challenges to find a technique that works for you. For example, the $5 savings trick is to pay for everything in cash and stash away any $5 that you get back in change.
Open an interest-earning account. A high-yield savings account rewards you for saving. The more you have in your bank account, the more interest you’ll accumulate.
Emergency fund pros and cons
Having an emergency fund comes with a host of benefits, but there are also a few caveats to keep in mind.
Pros
Gives you a safety net. An emergency fund reduces your chances of having to take on more debt when an unexpected expense pops up.
Reduces stress. Have peace of mind knowing you have money waiting if you lose your job, develop a serious illness or need to make major home or car repairs.
Helps your credit score. An emergency fund doesn’t directly improve your credit. But it does help you avoid maxing out on credit cards and worrying about missing payments if hard times hit — two factors that can lower your score.
Cons
Takes time to build. It could take months or years to build up your emergency fund. You can speed up the process by saving unexpected money and using a budget to reduce expenses. If you need money now, consider an emergency loan as a last resort.
Potential withdrawal limits. There may also be limits on how much money you can withdraw at one time, depending on the account /investment you store your emergency fund in.
Doesn’t work for all account types. Avoid keeping your emergency fund in an account where you’ll get penalized for accessing it early. Instead, opt for a high-yield savings account from a digital or online bank where you’ll have easier access to it.
How to choose the best savings accounts for emergency funds
Consider our list of the best banks in Canada and these factors when you’re comparing the best savings accounts for an emergency fund:
Access. Does the account offer online or mobile access to manage your money and view account activity? How robust is their mobile banking app? Compare our top 6 banking apps here.
Customer service. How can you reach customer service if you need help with your account? If the bank is purely online, is its customer service available 24/7 by phone or live chat?
Interest. Does the account pay a competitive interest rate?
Deposits and withdrawals. Can you easily make withdrawals through transfers or with an ATM card?
Fees. Does this bank account charge monthly or service fees that could eat into your balance?
Requirements. Find out how much you’re required to deposit or maintain when you open the account.
Alternatives for my emergency savings
Savings accounts are the most common place to park an emergency fund, but there are alternatives. If you’re looking for a nontraditional place to store your money or want to build an additional reserve beyond a standard emergency fund, consider these other options:
Cashable GICs
GICs are an effective way to save for retirement but they can also be used as an emergency fund or safety net if you sign-up for a cashable GIC. Cashable GICs offer a guaranteed return on your principal plus fixed interest with the flexibility to redeem your money early (typically after a short minimum holding period) without penalty.
Cash-value life insurance
Life insurance is a financial product that’s good to have, but never fun to think about. A cash value policy can protect your family if you die, but you can borrow from the policy if you need access to cash. You’re not required to pay back these loans, but they affect the balance your beneficiaries receive when you die.
Tax-free savings accounts
Tax-free savings accounts allow you to deposit up to $7,000 per year without paying capital gains taxes on anything you’ve earned, and far more if you haven’t yet opened a TFSA. This contribution room changes and accumulates every year just like a Registered Retirement Savings Plan (RRSP), meaning that any unused room is carried over to subsequent years.
Bottom line on saving for a rainy day
Finding a savings account that offers a high interest rate and low or no fees can help you grow your emergency fund quicker. Consider any of the best savings account for an emergency fund that we’ve already talked about or compare your options to find another account that suits your needs.
FAQs about emergency funds
An emergency fund is money set aside for emergencies such as car repairs, medical bills or living expenses. It can come in handy if unexpected expenses pop up or if you lose your job and need to cover living expenses while you look for new employment.
You can build an emergency fund just like you'd save for any other financial goal. First, determine how much you want to save, then make an initial deposit or recurring contributions into the account until you reach your goal.
Yes. Just keep in mind that some investments might take longer to withdraw when you need cash. It's up to you. Many people use their emergency funds for large, unexpected bills like car repairs, vet bills or home improvements, but you can access your funds whenever you see fit.
Rebecca Low is a writer for Finder. She has contributed to a range of digital publications, including income.ca, Indeed, and Expatden, writing on topics like personal finance, career development, and travel. See full bio
Peter Carleton is a freelance writer that covers banking and investing, breaking down what you need to know about where you put your money. When Peter's not thinking about cutting-edge banking apps and robo-advisors, he runs a creative agency and spends his spare time cooking or reading. See full bio
Savings account interest is taxable in Canada. Find out how taxation works and how to minimize what you owe.
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