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How to Start an Emergency Fund: A Guide Video

Emergencies are unpredictable and can affect your financial stability in an instant. While emergencies can’t always be avoided, an emergency savings fund can help you manage unexpected events by giving you peace of mind and preventing you from going into debt.

What is an Emergency Fund?

An emergency savings account, emergency relief fund, or emergency fund is defined as a special pot of savings that’s set aside to cover unforeseen and unexpected costs.

Like any savings category, it’s never too late to begin building up your emergency fund. The important thing is to start – even starting small is a step in the right direction.

Why You Need an Emergency Fund

Why might a person need an emergency fund? In what way is an emergency fund a form of insurance? What’s the difference between an emergency fund vs a savings account?

An emergency fund is specifically used to cover or offset the expense of an unexpected situation. It serves as a safety net, only to be used when financial crises occur – and it usually kept separate from your other savings account. An emergency fund can help pay for large, unexpected expenses. Here are a few emergency fund examples:

  • Medical expenses
  • Home repairs
  • Car repairs
  • Living expenses from unemployment

How Much Should I Save?

Your emergency fund amount varies, because how much you should have in an emergency fund depends on your lifestyle, monthly costs, income and family needs, a good emergency fund ratio is to set aside at least three to six months’ worth of expenses. While this may seem intimidating, the idea is to put a small amount away each week or two to build up to your goal. You can adjust the amount as needed based on your bills, job stability or other factors.

Eight Steps to Building Your Emergency Savings

Step 1: Set a Savings Goal
  • Saving money can be hard, especially if finances are already tight. But, like any journey, saving money is easier if you have a goal in mind.

    Before you chart your course, you’ll need to know what resources you have at your disposal. To start your savings journey, begin by tracking your income and expenditures – in other words, how much money you make, versus how much money you’re spending. Pay particular attention to how much money you need for necessities: groceries, rent, utilities, medication, etc.

    Then, set limits on how much you’ll spend on non-necessities: eating out, movies, non-necessary clothing, or toiletries, and other “wants.” By setting limits, you can not only wrestle your spending back under control, but you can free up extra money to divert to your emergency savings.

Step 2: Create a Savings Habit
Step 3: Start Small
  • Remember that an emergency savings account should ideally contain enough money to cover three-to-six months of living expenses, or enough to cover your most common “unexpected” emergency; so if you start by saving a small amount of money each month, you may want to gradually increase that amount as time goes on and you gain confidence in saving.

    To help determine how much to have in your emergency fund, use our emergency fund calculator.

Step 4: Don’t Over Save
  • How much emergency fund is too much? It’s often best to not be too ambitious. A savings goal should be realistic, achievable, and have a time limit. For example, let’s say you want to save $5,000 within six months – do you make enough to put that amount in savings without compromising your ability to pay for necessities? If not, you may want to extend your timeline or reduce your goal amount.

    If your goal is too high, or your timeline too short, you may not achieve it, which can be discouraging and make future saving difficult. Set a goal you are certain you can reach so that you are able to build your confidence along with your savings.

Step 5: Save Automatically
  • Once you have your goal and budget hammered out, you’re ready to begin! One of the easiest ways to save money is to set up a regular, recurring direct deposit. This means the funds will automatically be deducted from your paycheck and placed in a separate savings account of your choosing.

    Regardless of how much money you can sock away each paycheck, consider placing it in a savings account with a high-interest rate. The higher the Annual Percentage Yield – or APY – the more your savings account will earn. However, not all high-interest savings accounts may be right for you.

    For example, consider how quickly you’ll need to access those funds in an emergency. If it seems likely that your unexpected emergencies may require upfront payments, you probably don’t want to put all of your money into a high-interest savings account that has withdrawal limits and penalties, doesn’t allow check writing, or bars access to funds for certain periods of time.

    While those accounts can be a fantastic savings tool and really boost your balance, when it comes to emergency savings you will want to maintain access to at least part of your fund so that, when the worst happens, you’ll have the freedom to get the cash you need quickly.

    The important thing is to explore your options and figure out what will work best for your situation – and for the “unexpected” scenarios you’re likely to encounter. For example, if you feel unexpected home repairs are a distinct possibility, you can probably rest easy with a Certificate of Deposit (CD) and its withdrawal hold. But if you have family in another state – a child in college or an aging parent – that could require you to purchase a last-minute plane ticket in an emergency, a Money Market account or plain old savings account may be the better option.

    Set up Direct Deposit with Your First Merchants Account.

Step 6: Save Gifts, Spare Change
  • Do you always look forward to your tax return? Do you frequently get monetary gifts during holidays and birthdays? While it can be tempting to spend that extra dough, putting at least a portion towards your savings can save you a lot of heartache in the future.

    For many Americans, a tax refund is the largest lump sum they receive all year – and adding all or part of that refund to a savings account is an easy way to boost your emergency fund. When you file your taxes, consider having your refund deposited directly into your designated savings account. You can also adjust your W-4 tax form so you have less money withheld and direct the extra cash into your emergency fund.

    If you usually carry cash, all your spare change can add up faster than you think. So, if you often find your coin purse full, consider designating a special cup, jar, or piggy bank to deposit that extra change. Having a physical storage container can also help you easily set up a routine and build a savings habit – just empty your pockets each day, clean out your purse regularly, or hunt through your wallet. When the jar fills up, take it to the bank and deposit the cash.

    Want to know how much you have? Our Spare Change Coin Counter can help you count your coins.

Step 7: Monitor and Adjust
  • As with any plan, goal, or strategy, it’s important to consistently check your progress. This will allow you to watch your savings grow and correct the course as needed.

    An easy way to keep track of your savings is to set up an automatic account notification, check-in via online banking or mobile banking, or write down a running total of all your contributions.

    Once you start saving, review your progress every few months and check your progress against your goal. If you’re able, gradually increase the amount you’re saving each month – even increasing your savings by 1% can provide significant returns.

    However, don’t be afraid to decrease your savings rate, either, if your check-in shows that you’re having difficulty making ends meet. The important thing is to figure out what works for you and to not be afraid to adjust as you go along – with a little bit of time and effort, you’ll find a savings strategy that suits your lifestyle!

    Want to know more about managing your finances? Check out our Personal Finance blog!

Step 8: What’s Next?
  • Once you’ve reached your goal and have enough to cover the unexpected, it’s time to think about the future. Financial experts recommend having enough cash to cover three- to six months of living expenses. If you’ve managed to save that – and a little extra – in your emergency savings account, you may want to think about further maximizing those funds – because in a year, the amount needed to cover six months of living expenses could change drastically. Your cost of living could increase, a family member could become disabled, you could change careers, or your property taxes could increase. All of these are good reasons to consider a strategy that stretches beyond your initial savings goal.

    For example, you can begin a new emergency savings goal and put the money already accrued into a CD – or choose to invest it. Most CDs require a minimum deposit amount and may offer rates contingent on the size of the deposit. The interest you earn on your deposit depends on the interest rate, the term of the deposit, and the compounding method.

    The higher interest rate of a CD means that you can see a significant boost to your emergency fund, which can help you further down the road. Just make sure you have some funds set aside that you can access quickly in an emergency, as you will not be able to access your CD balance until the term has expired.

    However, don’t be afraid to use the money if you need it. If you spend what’s in your emergency savings, just work to build it up again. Practicing your savings skills over time will make the process easier!

    If you need help building a savings strategy, visit your local, welcoming banking center, or meet with one of our attentive bankers!

    You can use our CD Interest Calculator to calculate your savings at maturity. Having trouble determining which CD is best for you? Compare two CDs.

Where Should I Keep My Emergency Fund?


Emergency savings should be placed in an account that is easily accessible without taxes or penalties, such as a money market or interest-earning savings account.

Ready to start saving? Our bankers are here to walk you through the process. Schedule an appointment with a banker or open a savings account online.



I still need help getting started – what steps can I take?
How do I create a budget?
How do I set a savings goal?
How can a savings account help me be prepared for the future?

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