A poll by The Times shows that a third of those considered middle-class would not be able to pay an unexpected bill of £500 without having to borrow. An emergency fund helps by giving a safety net to fall on when the unexpected happens.
An emergency fund is a financial safety net you can rely on if a major unexpected event happens in your life. At the same time, it can help you earn interest and reach your financial goals. Unlike rainy day funds that aren’t meant for smaller, one-off expenses, an emergency fund is there to help in significant times of crisis. People commonly use emergency funds for:
You could choose a standard easy-access savings account but often it is easier to open an account using one of the new digital banks. There are a number of easy access banking apps where you can keep your emergency fund and have instant access to it.
Revolut Standard
8.9 GreatRevolut's savings account has instant access, no minimum deposits and can be opened and managed all at the touch of a button. Available to all Revolut customers, even those on its standard plan, you can access your savings whenever you need them through the app. Interest depends on which Revolut plan you have, but it's paid daily.
Monzo Current Account
9.3 ExcellentMonzo's Savings Pots let you earn interest on your savings, and you can access them whenever you need to, all through your mobile app. What we like about Monzo is its features designed to help you save. It has roundups, where if you spend more than £1, the spare change will be added to your Pot, as well as automated savings and the ability to lock your Pot if you want to avoid dipping into your savings for a period of time. Most importantly, your savings are FSCS protected.
Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 39% EAR variable.
Starling Current Account
9.8 ExcellentStarling has an Easy Saver which sits alongside its current account. You can easily transfer money between the two, with no need to give notice and no limit on the number of withdrawals you can make. The Easy Saver is different to Starling's Spaces in that it's a different account, but the benefit is that it pays interest, and if you ever need to access your savings in an emergency, you can instantly make a withdrawal using your app.
Representative example: If you use an arranged overdraft of £1,200, you'll be charged interest at 15% EAR variable.
Emergency funds should be used for major emergencies and not for expenses you forgot to plan for, like birthday gifts, car insurance renewals, taxes, etc.
If you can answer “yes” to these 2 questions, it’s most likely an emergency.
Here’s a step-by-step guide on how to start an emergency fund.
Most experts recommend keeping 3–6 months of basic expenses in your emergency fund. But this is a general rule of thumb. The most important thing is to save what you can – whether that’s £50 or £500 a month.
There’s no one-size-fits-all when it comes to calculating your emergency fund. Here are 3 possible methods to determine how much you need to tuck away for a rainy day.
Here’s how much you might put away using the monthly method after breaking down your monthly expenses:
| 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 | £15 |
| Total expenses | £2,540 |
If your goal is to have 3 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 6 months, you’d need £15,240 (£2,540 x 6).
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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 a 4 tips to try to expedite your savings goals:
Having an emergency fund comes with a host of benefits, but there are also a few caveats to keep in mind.
Emergency funds can help you add a buffer between you and the unknown. How much you should save depends on your financial situation and goals. As always, compare savings accounts to find one that’s best for your emergency savings.
Discover who is most suited to this unique product with our review of Lloyds’ Upfront Interest savings account.
Find out more about the different types of savings accounts on offer.
We look at the definition of compound interest, what it concretely means and how you can use it to grow your savings more quickly.
Earn interest on your savings while still being able to withdraw them if you need to with an easy access savings account.
The AER, or Annual Equivalent Rate, is the official rate for savings accounts. It’s designed to allow easy comparisons between accounts.
Thinking about getting a savings account with Virgin Money? We look at the options, from cash ISAs to regular savings accounts, plus pros and cons.
Looking to save with Lloyds bank? Our guide explains the different savings account options, so you can decide which is the best saver for you.
Choosing between ISAs or normal savings accounts is easier than it seems. Pick the one which pays out most! Read our guide for tips on how to get the most out of your savings pot.
A cash ISA is a savings account where you never pay tax on the interest. Use our comparison table to find the best ISA rates – whether you want to lock cash in for a set time or keep it easy access.
Kickstart your savings plan with a high interest savings account.
