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How to start a rainy day fund

A rainy day fund can keep you prepared to weather any financial storm.

No matter how financially disciplined you are or how well you plan, you can’t predict the future, and it’s not always possible to stick to your budget when unexpected expenses happen. A rainy day fund can help make sure those expenses don’t cause long-term financial harm.

What is a rainy day fund?

A rainy day fund is money you set aside to cover the unforeseen expenses that arise when something goes wrong. Unlike emergency funds, which are intended to help with major financial upheavals like unemployment or a natural disaster, a rainy day fund is intended to help with smaller expenses.

Why do I need a rainy day fund?

You need a rainy day fund to protect your financial stability. It’s a safety net to make sure that you don’t end up with missed bills, credit card debt or a payday loan because of an unexpected expense, like:

  • If your car breaks down
  • If you receive an unexpectedly large bill
  • If you need to offer financial assistance to a loved one in the event of a family crisis
  • If you need to buy a last-minute plane ticket

How much should I save?

Start by working up to a $500 fund, and then continue to build from there. You may feel comfortable with a fund of $500, or you may want to work your way up to a few thousand dollars. How much you need will depend on your circumstances. For example, if you have a high health insurance deductible or an older car, you may want to save more.

When setting a savings goal, consider what unexpected expenses you may face, as well as the other people who are dependent on you for financial support, such as spouses, children and elderly relatives.

Where to keep a rainy day fund

Keep your rainy day fund in a savings account that you can easily access. You want to make sure that you can access your money quickly when an unexpected expense pops up. You can compare savings account options in the table below.

1 - 4 of 4
Name Product Interest Rate Promotional Interest Rate Min. Bal / Min. Deposit Account Fee
Simplii High Interest Savings Account
$0 / $0
Earn 4.75% interest on your savings. Open an account and get a special interest rate for deposits up to $1,000,000. Conditions apply. Valid until October 31, 2022.
KOHO Earn Interest
$0 / $0
Use promo code FINDERCODE and get a $20 cash bonus when you make your first purchase within 30 days. Opt into earning interest for free and earn 1.20% on your balance, plus an additional 0.50% in cash back on every purchase you make.
Neo Money Account
$0 / $0
Get a competitive interest rate and unlimited free transactions with no monthly fees or minimum balances.
EQ Bank Savings Plus Account
$0 / $0
Enjoy zero everyday banking fees, free transactions and no minimum balance.

Compare up to 4 providers

5 tips to save for a rainy day

How long it’ll take you to save up a sizable fund depends on your finances. But no matter what you can afford, setting aside a bit each month can help you build up a financial safety net.

1. Work out a budget

Working out a realistic budget is a crucial step in becoming a more efficient saver. Figure out how much you spend on everyday expenses and bills, and then calculate how much you can reasonably afford to save each week. Consider whether there are any expenses you may be able to cut back on in order to save more.

2. Earn interest

Make sure your rainy day fund isn’t just sitting in a checking account earning zero interest. Compare high-interest savings accounts to store your rainy day fund. These accounts make your money work harder for you, help you grow a larger rainy day balance and allow you to access your money quickly when an emergency arises.

3. Be wary of fees

Make sure you’re aware of all the fees that apply to your rainy day account ongoing service fees can quickly eat away at your savings balance without you even realizing it. Getting a free savings account can make it easier to keep your rainy day fund growing.

4. Automate your savings

Take advantage of tools that automatically move money into your savings account, like scheduled transfers and apps that round up your purchases and move the change to savings.

5. Don’t dip into your rainy day fund

Your rainy day fund is there to help out in emergencies only, not to be used for vacations or impulse purchases. Remain disciplined and don’t access the money in your account unless it is absolutely necessary.

Bottom line

If you have the foresight and financial discipline to save for a secure financial future, you’ll be able to stay dry and keep your head above water no matter how rainy life gets. Get started by adding a savings plan into your monthly budget and by learning more about savings accounts to compare your options and find the right fit for you.

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