How to Build and Use Emergency Funds

Ways to plan, start and maintain your emergency fund


Even in the best of times, it might make sense to have a little extra money put aside for emergencies. A financial buffer can help if, for example, your car breaks down, your bathroom floods or you’re hit with a big medical bill.

And having an emergency fund might also help you avoid tapping into long-term savings—like a retirement or college fund—when an unexpected cost pops up.

What Is an Emergency Fund?

An emergency fund is money set aside in case of an unplanned expense or a financial emergency. But unlike other types of savings, an emergency fund is one you probably hope you’ll never have to use.

When thinking about an emergency fund, the key word is “emergency,” according to Beth Sabin, vice president of investments at United Income from Capital One. “An emergency fund is to cover unexpected necessities,” she says. “It’s not advisable to use it for luxuries or anything that’s not a necessity, such as a vacation, an espresso machine or a toy your child really wants.”

How Much Money Should I Have in My Emergency Fund?

The Consumer Financial Protection Bureau (CFPB) recommends starting your emergency fund with a goal of $500. This figure, the CFPB says, is enough to cover common emergencies like car repairs, a plane ticket to care for a sick family member or minor medical costs.

Other experts, including Sabin, suggest that amount should ultimately be higher. 

“The industry standard is that emergency funds should be able to cover three to six months of expenses,” Sabin says. This could include things like your mortgage or rent, utilities, monthly food budget, health care, and car expenses. It might also cover other essentials like clothing, toiletries and household supplies.

If saving $500 or more seems out of reach, try not to be discouraged. Even smaller amounts can give you some financial security. 

“Any little bit counts,” Sabin says. “Each dollar saved gives you a little more buffer from an unexpected expense.”

To help you start saving, the CFPB has a PDF worksheet in its Your Money, Your Goals financial empowerment toolkit. The CFPB also has a Savings Boot Camp email course that you can sign up for. 

How to Set Up an Emergency Fund

As a first step, Sabin suggests opening a separate savings account for your emergency fund. 

“Set up an automatic, recurring contribution you’re comfortable with,” she says. “And make additional one-time contributions whenever you can.”

Once you get closer to a full emergency fund, she says, you can consider other savings options that might work better for you. She recommends looking for accounts that are easy and fast to access and where the value of your money isn’t likely to fluctuate too much.

Here are three options for where you could put your emergency fund savings:

1. Savings Account

A traditional savings account may be one of the first options you think of when considering where to put your emergency fund. If you’re using an FDIC-insured bank, your money is insured by the federal government up to allowable limits and can be withdrawn easily. Keep in mind that some savings accounts come with lower interest rates than other types of accounts. That means you might earn less on your balance. However, some banks offer high-yield savings accounts with higher rates. 

A certificate of deposit is a type of savings account that may have a higher interest rate than a regular savings account. Plus, it’s also typically insured by the FDIC, and the interest rate is guaranteed for a fixed period. But you could face a penalty if you withdraw your cash early.

2. Money Market Savings Account

Similar to a high-yield savings account, a money market savings account may provide higher interest rates than a standard savings account. You can access your money relatively easily, and these types of accounts are typically FDIC insured. But there’s normally a minimum amount needed to open and maintain the account. And similar to savings accounts, money market savings accounts typically come with withdrawal rules and fees.

3. Low-Risk Investment Account

Some investments, like individual stocks, might be too risky for an emergency fund. It’s possible you could lose some or all of the money you invest because of market changes. But there might be lower-risk opportunities. 

If you’re considering an investment account for some or all of your emergency fund, it’s a good idea to seek the advice of a qualified financial professional. They can help you find an option that might work for you.

How to Build an Emergency Fund

It can be hard to start putting aside money without knowing when you might need it. So here are some ways that could make it easier for you to build your emergency fund:

1. Keep It Separate

The CFPB recommends setting up a separate savings account for your emergency fund. This makes it accessible but not so accessible that you’ll be tempted to dip into it. 

2. Start Small If You Need To

The Federal Trade Commission recommends saving even if you can only manage $10 each week or month. You might find it useful to set a regular schedule for your contributions and stick to it. It can be motivating and satisfying to watch the deposits add up, however small they start off.

3. Pay Yourself First

If you can, you might want to consider setting aside some of your income for savings before you spend it on anything else. You could even automatically transfer your chosen amount into a savings account each payday.

4. Bank Any Extras

A tax refund, cash gift or raise at work could provide a good opportunity to kick-start an emergency fund or give it a big boost. Immediately setting that money aside can be a great way to grow your savings without dipping into your wallet.

When to Use an Emergency Fund

Now that you know how to build an emergency fund, how do you know when you should use it? Here are a few common situations when you might need to tap into your emergency savings:

1. Protecting Your Income

A financial buffer could help if anything threatens your ability to do your job—for example, if your car breaks down and you can’t get to work any other way or you need a new piece of equipment.

2. Replacing Your Income

If your job is downsized or cut, your emergency fund could help you pay rent, buy food and cover other necessary expenses until you can find another source of income.

3. Covering Medical Expenses

Using your emergency fund is a no-brainer if your doctor recommends treatment or medication for a health issue.  

4. Maintaining a Habitable Living Environment

Damage to your home, like a leaky roof, could cause more costly issues down the line if it’s not taken care of as soon as possible.

Remember, everyone’s situation is different, and you might have multiple ways to respond to a financial emergency. If you’ve been laid off and you’re struggling to pay bills, the CFPB recommends reaching out to your lenders directly.

You can also get advice from a qualified financial professional. Some organizations might even offer free advice for people affected by COVID-19.


Learn more about Capital One’s response to COVID-19 and resources available to customers. For information about COVID-19, head over to the Centers for Disease Control and Prevention

Government and private relief efforts vary by location and may have changed since this article was published. Consult a financial adviser or the relevant government agencies and private lenders for the most current information.

We hope you found this helpful. Our content is not intended to provide legal, investment or financial advice or to indicate that a particular Capital One product or service is available or right for you. For specific advice about your unique circumstances, consider talking with a qualified professional.

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