How to rebuild your emergency savings

Although inflation has decreased considerably after peaking in mid-2022, the costs of many necessities remain stubbornly high. For instance, Americans continue to pay significantly higher prices on shelter, energy and food than they did a year ago, according to the Bureau of Labor Statistics’ monthly consumer price index (CPI) report.

With the higher costs of living, many Americans have had to dip into their emergency funds just to get by. Having at least three- to six-months’ worth of living expenses in a savings account can help you get through the unexpected, such as a medical bill, a car repair or a job loss.

Currently, 33 percent of Americans have more credit card debt than emergency savings, Bankrate’s latest Emergency Savings Report found. An additional 13 percent don’t have credit card debt, but don’t have any emergency savings, either.

Key emergency fund statistics

What is an emergency fund?

An emergency fund is money in the bank for the purpose of covering unplanned expenses. It can be your lifeline when faced with surprise home repairs, a big medical bill or a death in the family.

If you’re faced with a sudden job loss, an emergency fund should be able to cover several months of living expenses. These include your rent or mortgage payment, utility bills, food, insurance premiums and transportation.

In addition to covering expenses after a job loss, other costs an emergency fund could help cover include a flat tire, a leaking water heater or a trip to the emergency room, says Michael Sullivan, a personal finance consultant with Take Charge America, a Phoenix-based nonprofit credit counseling agency.

A healthy emergency fund helps you avoid taking out loans or racking up high-interest credit card debt.

Less than half of Americans (41 percent) would use their savings to fund an unplanned emergency expense, such as $1,000 for a car repair or emergency room visit, according to Bankrate’s emergency savings report. What’s more, 27 percent of U.S. adults have no emergency savings at all, as of June 2024, the survey found.

How much should I save in my emergency fund?

Experts suggest stashing away at least three to six months’ worth of household expenses in an emergency fund.

In fact, 89 percent of people in 2024 said they wouldn’t be comfortable with their level of emergency savings until they’re able to cover at least three months’ worth of living expenses, Bankrate’s emergency savings report found. What’s more, 18 percent of Americans regret not saving enough for emergency expenses, according to Bankrate’s Financial Regrets survey.

Here is an example of what one month’s worth of household living expenses might look like:

• Rent: $2,009
• Utilities: $380
• Food: $832
• Car payment for new vehicle: $734

The total for the above expenses is $3,955. A three-month emergency fund for this example would contain $11,865, while a six-month emergency fund would hold $23,730.

Those who are self-employed may want to save more than three to six months’ worth of expenses to cover times when income fluctuates. Retirees whose income is generated from investment accounts would also benefit from extra savings, as would people with medical issues whose insurance might not fully cover things like surgeries or medications.

Setting aside additional funds could also provide peace of mind for anyone during hard times such as a pandemic or a recession.

Best savings account for an emergency fund

When it comes time to start putting money into an emergency fund, look for a high-yield savings account with few or no fees. High-yield savings accounts are liquid, which means you can quickly access your money when it’s needed.

A money market account that pays a competitive yield could be another good spot for your emergency savings. On the other hand, a certificate of deposit (CD) is not the best place for money you might need in a pinch, since CDs typically lock in your money for a set term. Taking the money out before a CD expires may result in a hefty early withdrawal penalty.

“While it’s great to earn interest on your emergency fund, your primary goal should be to keep the money safe and liquid,” says Scott Schleicher, senior manager advisory & planning at Empower. “Some accounts will have withdrawal limits, restrictions or even hidden bank fees, so just make sure you’re aware of that before moving your money.”

How to restart an emergency fund

Getting back on track with your emergency fund starts with identifying the amount of money you earn and spend each month. Creating a budget, cutting expenses, automating your savings and increasing your income are ways you can ultimately build up your emergency fund.

A way to get started is by setting up a deduction every payday into a high-yield savings account to help cover emergencies, says Sullivan from Take Charge America. “The initial goal should be to get to $1,000 as quickly as possible to be prepared for the emergency that is almost certain to happen at least once a year.”

Ultimately, saving $1,000 in a year would break down to $100 a month, or $39 per paycheck for someone getting paid every two weeks, Sullivan says. He adds that “this may require some special temporary effort, such as ramen Tuesdays to reduce food budgets or dry Saturdays to reduce entertainment budgets,” but the real key is getting started with saving money.

1. Make a budget

List where your money is going, including line items for things like housing, transportation, food, clothing, entertainment and so on. Making a list will help you identify how much you can add to your savings each month, so a line item for saving for your emergency fund should be included. Determine your emergency fund goal, whether it’s three to six months’ worth of expenses, or more.

If you already have a budget document in place, it’s good to reevaluate it periodically, as income and expenses can change over time.

2. Try cost cutting

One way to help save for emergencies is to streamline your expenses. This can help keep you from going into debt should unexpected expenses arise. In fact, of those with credit card debt, 47 percent say unexpected or emergency expenses are the main reason for it, Bankrate’s credit card debt survey found.

One way to cut costs is to identify unnecessary expenses, which could include frequent dining out or coffee runs, unneeded insurance, or unused subscriptions to magazines or streaming services.

“Analyze your monthly spending and find things you want to cut back on,” says Davon Barrett, banker and vice president at J.P. Morgan Private Bank. “Too much delivery? Big cellphone, Wi-Fi and cable bills? These expenses are all somewhat easy to reduce or find alternatives for once you’re aware of them.”

In addition to trimming expenses, one way to increase your savings is earning rewards from a credit card. This could be done in a healthy way by putting monthly household expenses or other planned purchases on a credit card.

Types of rewards you can earn with a credit card include cash back rewards and travel points or miles. Whatever rewards you earn, it’s important to only charge things you can pay off when the bill comes. Otherwise, you’ll be hit with interest charges, which can lead to even more expenses each month.

3. Automate your savings

One way to make saving money easier is to set up regular automatic transfers to the savings account that holds your emergency fund. This can often be set up easily using a mobile banking app. When money is transferred to savings automatically each paycheck, you’ll likely be less tempted to use it for impulse purchases. This can help build up your emergency fund more quickly than if you had to initiate the transfers manually.

4. Find ways to earn money

In addition to cutting costs, a way to supplement your main source of income is by getting a side hustle. This extra money can be put toward savings, or it can help you handle the increased cost of living due to inflation.

“For example, some people sell unneeded items online or hold a yard sale,” says Sean Fox, chief revenue officer at digital personal finance company Achieve. “Other people have part-time jobs, provide dog walking services, do yard work, tutor or help with IT services.”

Examples of side hustles include:

• Freelance writing
• Driving for Uber or Lyft
• Food delivery
• Babysitting
• Pet sitting
• Getting a roommate

Side hustle statistics

FAQs about emergency savings

• What is an emergency fund?

  An emergency fund is money in the bank that’s earmarked for unplanned expenses such as a trip to the emergency room, a major home repair or a sudden job loss. Having such a fund lowers the chance you’ll need to go into credit card debt or borrow money elsewhere for such expenses.

• How much should be in an emergency fund?

  Experts recommend you have at least three to six months’ worth of living expenses set aside in your emergency fund. Such expenses often include rent or mortgage, utilities, transportation and food, as well as payments toward your credit card or other loans.

• Where is the best place to keep your emergency savings?

  An emergency fund is best kept in a liquid account you’ll have easy access to, such as a high-yield savings account or a money market account. Such a liquid account earns you some interest and allows you to withdraw the money easily and without paying a penalty. With stocks or bonds, there’s a greater risk of losing the money, and CDs often charge an early withdrawal penalty if you need access to the funds before their term is up.