What is an emergency fund?

Man And Child With Savings Jars

An emergency fund is an amount of savings you set aside as a safety net in case something unexpected happens, for example losing your job or an unforeseen expense.

Building an emergency fund can help prevent you from having to borrow or make a difficult financial decision if something goes wrong. Your emergency fund could support you while you take some time address the situation.

When planning your emergency savings, questions like how much you should save and where you keep these funds may come to mind. Let’s explore more about creating your emergency fund.


How much emergency savings should I have?

How much you can afford to put away in an emergency fund will depend on your circumstances. In general, though, the more you can put aside, the better prepared you may be financially for an emergency and the longer you can sustain yourself should something happen.

It’s often suggested that an emergency fund should be around three months of living expenses. However, this rule doesn’t work for everyone.

You may need to have a larger emergency fund if you’re financially responsible for children and the sole income earner, for example. Conversely, you may be unable to afford to put several months’ expenses aside. No matter your circumstances, having any kind of emergency fund (however small) can still help to give you more financial security than not having one at all.


How to build an emergency fund

It can take time to develop your emergency fund. While it’s good to set up your emergency fund as soon as possible, it’s best to keep to what you can afford and try to save regularly. So, where do you start? Don’t worry - it’s relatively simple.

Follow these easy-to-implement steps for a great start to your emergency fund development.


Understand your essential outgoings

Before you can work out how much you can afford to save, you need to know how much you’re spending.

Go through your bank statements carefully and see where you are spending the most. From this exercise, consider if any expenses can be reduced or removed. Subscriptions, for example, may be optional. When you cut back in one area, you’ll have that money to either put into your emergency fund or use more effectively elsewhere.

Create a savings goal

When you understand your income and spending habits, create a goal of how much you plan to save by a specific date. Setting yourself a deadline can help motivate you, but make sure your goal is realistic.

You can also use the 50-30-20 guideline to help you save. The 50-30-20 rule is a helpful way to set up your budget. 50% of your income should go to essential expenses like rent or mortgage, utilities, car repayments, etc. 30% can be allocated to things you want more than need. Finally, 20% should service debt or build savings.

For help with reaching your target, read our money-saving tips.


Make saving a habit

Make time every so often to track your progress and see how close you are to reaching your emergency fund goal. And also, remember that your savings habits shouldn’t finish once you hit your target.

If you find money left in your budget at the end of the month, you can continue to save this.


Account limits

You can open as many savings accounts as you like.

You can hold multiple ISAs, but you can only invest in one of each type within a single tax year. So, within the same tax year, you can deposit into a cash ISA and a stocks and shares ISA but you can’t invest in two separate cash ISAs.


Where should you keep your emergency funds

Wondering where to put emergency savings? It can be a good idea to keep them in a dedicated savings account. This can help you avoid the temptation of spending these funds elsewhere, while also earning interest. A separate account can also help with building better savings habits as you can pay directly — and regularly — into the account. 

When choosing where to put your savings, always remember that an emergency fund needs to be accessible. So, check the terms and make sure you can access the money quickly if needed.

At Shawbrook, we offer easy access savings accounts with next working day access.


What are the benefits of an emergency fund?

There are several direct and indirect benefits to having an emergency fund .

  • Comfort in knowing you have the money saved up in case of emergencies. You’ll also likely be less stressed if something goes wrong because you’ll be better equipped financially to handle it.
  • You’ll get into a better habit of saving money. When you’ve reached your emergency fund goal, you can apply the same knowledge and discipline to save for something else, like a big holiday or retirement.
  • Having the money in a separate account that requires some administration to access may also deter you from spending money unnecessarily.
  • An emergency fund can also help you to keep out of debt as you could be less likely to need to rely on credit or loans.


Are you ready to start creating your emergency fund?

Having an emergency fund can help you increase your financial security. It can also give you peace of mind as you’ll be better equipped to deal with unexpected expenses or sudden loss of income.

Interested in saving with Shawbrook? We have an award-winning range of products with easy online application and we’re FSCS protected.

Take a look at our easy access savings accounts and start your emergency fund today.

Make your savings work harder

Want award-winning rates and a first-class service? Look no further...

Our savings accounts

From easy access to fixed rate bonds, we have a range of savings accounts to suit your needs.

Have a question?

We have a range of frequently asked questions, guides and articles designed to help you get to know our products.

Read our news and guides

Explore our other guides and tips to find out more about saving, and how different savings products can work.