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Personal finance

What is an emergency fund?

The meaning

Money set aside specifically for unexpected costs… a job loss, a surprise medical bill, a car that breaks down at the worst possible time. The standard advice is to have enough to cover three months of your regular expenses, kept somewhere you can get to it quickly (like a savings account). More in Why You Should Have an Emergency Fund.

Example
3 months$9,000
6 months$18,000
If essentials cost $3,000 a month, here is your target, kept in high-yield savings.
Walk through the numbers

If your essential costs are $3,000 a month, a three-month emergency fund is $9,000 and a six-month fund is $18,000, kept in a high-yield savings account.

Why it matters

It is what lets you leave your investments alone when the car breaks down or a job ends.

Read: Why You Should Have an Emergency Fund →Compare: Dividends vs high-yield savings →

Related terms

High-yield savings accountA savings account that pays a higher interest rate than a typical bank account.BudgetA plan for where your money goes each month.RecessionA broad slowdown in the economy, usually with job losses and less spending.Interest on savingsWhat a bank or borrower pays you for using your money.

See all 34 terms · Read the full glossary

For education only and not personalized investment advice. Examples are hypothetical illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal.