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How to start (and build) a medical emergency fund

A girl of mixed race visits the nurse and has a check up on her broken arm.
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A girl of mixed race visits the nurse and has a check up on her broken arm.
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No matter what time of year it is, there are sudden, unexpected events that can pop up and rack up large costs. And if you’re not prepared, they can also put a significant dent in your finances.

Medical expenses are some of the costliest emergency expenses. Though insurance covers some of the total cost of healthcare, individuals with employer-sponsored insurance still paid an average of $1,242 in out-of-pocket costs in 2019, a survey by the Kaiser Family Foundation found. Plus, 28 million Americans — or 8.6 percent of the population — were without any insurance at all, according to a 2020 analysis by the U.S. Census Bureau.

Building an emergency fund can help to mitigate the setback of an unexpected medical expense. Although it’s impossible to predict what kind of expenses might crop up, there are some strategies for planning to have a certain amount of savings set aside for medical emergencies.

What is a medical emergency?

Medical emergencies are injuries or illnesses that require immediate care. Unlike other types of medical situations, a medical emergency can result in serious health consequences or death if not attended to right away.

Some of the signs of an adult medical emergency listed by the American College of Emergency Physicians (ACEP) include:

  • Changes in vision
  • Choking
  • Fainting
  • Injury from a serious motor vehicle accident
  • Sudden or severe pain
  • Suicidal or homicidal thoughts
  • Uncontrolled bleeding
  • Vomiting blood

The signs of a medical emergency differ for children and may include:

  • Eating difficulties
  • Fever accompanied by change in behavior
  • Skin or lips that look blue or gray

These lists are not comprehensive; be sure to review the full overview provided by the ACEP.

A 2020 Bankrate study found that 1 in 3 Americans refrained from seeking medical care due to the cost. Not being able to pay for medical care poses a serious hazard to Americans’ health, since medical issues left unaddressed can spiral into much more severe health problems.

Common emergencies and how often they happen

The emergency department of hospitals is responsible for treating medical emergencies. The Center for Disease Control and Prevention (CDC) collects data on how many visits to the emergency department are reported annually in the U.S., along with the most common reasons for these visits, as shown in the table below.

Emergency type Number of visits reported in a year
All visits 129.97 million
Stomach and abdominal pain 11.09 million
Chest pain and related symptoms 7.09 million
Fever 5.84 million
Cough 4.96 million
Shortness of breath 3.87 million

Source: The CDC’s National Hospital Ambulatory Care Medical survey, 2018. The CDC has temporarily removed data from its most recently released survey from 2019 due to incorrect estimates, so the data shown here is from 2018.

Average out-of-pocket healthcare costs

Americans paid $1,235.34 on average in out-of-pocket healthcare expenses in 2019, according to the most recent publicly available data from the World Health Organization. The amount has increased by $548.72 since 2000, and it increased by $46.73 from the previous year.

Here’s a breakdown of out-of-pocket healthcare expenses over the years.

Why you need a medical emergency fund and how to build one

Medical emergencies can happen for any number of reasons — and they’re costly to pay for. With or without insurance, urgent care or emergency room visits often come with high out-of-pocket costs and may require follow-up care.

Setting aside money specifically for medical emergencies helps ensure that if such an event occurs, you’re less likely to be burdened with swaths of debt in the aftermath. It can be used not only to pay for medical bills, but also to cover expenses on lost income if you become incapacitated. High-yield savings accounts and money market accounts are good places to store a medical emergency fund.

There are several strategies for building an emergency fund — they might not all be suited to your financial situation, so find what works best for you.

Create a budget

A budget provides guidance for what to do with your money and helps you stay on track to consistently build up savings. If you already have a budget with an emergency fund as one of the line items, consider adding another category specifically for medical emergencies.

Calculate how much you’d need to save each month based on your various sources of income to save up at least three to six months’ worth of expenses. This amount will vary depending on how many sources of income you have, how much money you’d need to cover each month of expenses and whether you have dependents that you are also financially responsible for.

For those who favor the aid of digital services, there are also several helpful budgeting apps, which can organize spending and savings categories for you.

A plan for building up emergency savings over the course of a year might look something like this:

Initial deposit Monthly contribution Total emergency savings after one year
$500 $208.33 $3,000

Automate savings

It’s easy to forget to make contributions to a savings account and then end up spending what could have been saved. Automated savings can help alleviate that problem by transferring money into a savings account for you.

There are many bank apps that come with automatic savings features, such as Ally Bank’s Surprise Savings, which analyzes the user’s checking account and looks for places where money can be saved. It then automatically transfers those savings to an Ally savings account. There are also third-party apps, such as Digit and Chime, that can automatically move a percentage of your paycheck into a savings account.

Save bonus earnings

Surprise earnings — tax refunds or security deposit checks, for example — make for great contributions to an emergency fund. It may be tempting to spend the money, but you can avoid impulse buying by setting aside a certain amount of the check in your savings account from the get-go.

Shop around for higher yields

Banks and credit unions reward you for stashing money away in a savings or money market account with higher yields than are offered on checking accounts. It’s best to compare what different financial institutions have to offer and consider opening an account somewhere other than your current bank if your money will grow a lot faster elsewhere.

Online banks often boast higher yields than brick-and-mortar banks, and could serve as a good place to store an emergency fund, since you won’t need to access the money frequently.

Bankrate’s analysis of the best savings accounts is a good place to find top banks and credit unions offering higher yields on their savings products.

Find a source of passive income

Passive income is income that comes from a source other than an employer or contractor. While it may require more work upfront, it generally involves less work overall than a full-time job, and can serve as a means of generating extra cash flow. That extra cash can go toward an emergency fund.

Selling photography, investing in dividend stocks and creating a blog are all popular ways to earn passive income and boost emergency savings.

Bottom line

Costs for medical treatment can be very expensive, and they continue to increase each year. One visit to the emergency room could cost well over $1,000, and that might deal a serious blow to your finances if you’re not prepared.

Emergency funds serve as a safety net for these unexpected expenses, and since medical costs are some of the highest emergency expenses, it makes sense to have some money set aside specifically for medical emergencies. Shop around for a money market account or savings account with a high yield to let your savings really grow. Even if you can only contribute a small amount to savings each month, it’s good to save whatever you can and plan ahead with a budget.

Written by
René Bennett
Banking writer
René Bennett is a writer for Bankrate, reporting on banking products and personal finance.
Edited by
Senior wealth editor