How to build an emergency fund

Recent studies suggest that almost half of adults in the UK don't have money set aside for unexpected expenses, and of those who do, a quarter have less than £1,000 stored away. This means that most people have less than a month's worth of savings for emergencies.¹

It's no big secret that ‌today's financial uncertainty has got many of us living pay cheque to pay cheque. Ironically, that same uncertainty has increased the need for emergency savings. But how much is enough? And how can you manage to save when you're struggling to make ends meet?

In this guide, we'll show you how to build an emergency fund from scratch, with a few simple budgeting strategies. You'll learn how to calculate the amount of emergency savings you need, how to find the best savings accounts for your fund, and how to create a savings plan you can actually stick to.

We'll also show you how to boost your emergency fund with Revolut Instant Access Savings. Not only will you earn interest on your balance, but you'll also have immediate access to your money, for anything life throws your way.

What is an emergency fund? 

An emergency fund is an amount of money that you set aside for unexpected expenses or financial emergencies. This could include things like sudden medical bills, car repairs, home repairs, or living expenses if you lose your job. Think of it as a safety net. If the unexpected happens, you'll have that money to pull from.

Do I really need an emergency fund?

Building an emergency fund may feel like an uphill battle if you're barely making ends meet, but having one will save you a lot of stress in the long run. Saving even a little each month can add up and prepare you for the unexpected.

Here are some of the benefits of having an emergency fund.

• It gives you peace of mind.
  And that's priceless. Having some extra money set aside offers a sense of security and confidence. This allows you to focus on other aspects of your life without worrying about financial setbacks.
• It helps keep debt at bay.
  If you have an emergency fund, you're less likely to rely on credit cards or loans to cover unexpected expenses. This means fewer interest payments, which can add up to significant savings over time.
• It keeps you on track towards your financial goals.
  When you have emergency savings, you can avoid dipping into funds meant for other purposes, like retirement or a house deposit.
• It improves your financial discipline.
  Building an emergency fund helps you develop a consistent savings habit. This discipline can carry over to other areas of your financial life and help you manage your money more effectively.

How much should I have in my emergency fund?

The amount you should have in your emergency fund depends on your personal financial situation. A common rule of thumb is to save enough to cover 3 to 6 months' worth of living expenses.

Here's a simple way to calculate it.

1. Estimate your monthly expenses.
   Add up the cost of rent or mortgage, utilities, food, transportation, insurance, and other regular expenses.
2. Determine the number of months you're aiming to save for.
   This may depend on factors like your job security, health, and dependents. If you have a stable job and aren't providing for other family members, you might be comfortable saving just 3 months' worth of living expenses. But, if you have irregular income or an older home that might require repairs, you might want to save even more than 6 months' worth.
3. Multiply your expenses by the number of months.
   This is your overall target for your emergency fund.

You can find emergency fund calculators online that'll help you estimate the amount you should shoot for. They can be useful, but they don't set hard-and-fast rules. Consider your personal situation and aim for an amount that makes sense for you.

Where do I put my emergency fund?

Not all account types on the market are suitable for an emergency fund. Think about why you're opening that account in the first place and what you need from it. Then weigh your options carefully.

The best accounts for your emergency savings offer the following:

• Safety
  Choose a reputable bank or institution, and research their security methods. How do they keep your account safe? What sort of technology do they use? Are your deposits insured?
• Growth potential
  Will the account help you grow your money steadily over time? It's fine to keep your emergency money in your current account, but you won't be earning interest. Instead, go for a savings account that'll give your emergency fund a little boost. Having a separate savings account for your emergency money will also help you resist the temptation to use it for something else.
• Stability
  You'll want to make sure your emergency money maintains its value. While stocks, bonds, and investment funds can offer higher returns than regular savings accounts, they fluctuate with market conditions.
• Accessibility
  You never know when you will need to access your emergency fund, so it's important to consider if the account you choose has accessibility to withdraw your money quickly and easily in case of an emergency, without penalties or delays. After all, you don't know when you're going to need it.

Best savings accounts for an emergency fund

You want flexibility. You want stability. You want steady growth. With that in mind, let's look at what you could consider when choosing an account for your emergency savings.

• Instant access cash ISAs
  ISA stands for Individual Savings Account. There are several types of these, but they all offer tax-free interest on your savings. The best ones for your emergency funds are instant access cash ISAs. They let you withdraw your money at any time without notice or penalties, and there's little to no risk of losing money through market fluctuations. (Tax treatment depends on individual circumstances and may be subject to change in the future).
• Notice accounts
  These accounts typically offer higher interest rates but a little less flexibility. You'll need to give notice before making a withdrawal, usually 30 to 90 days in advance. These can be good options if you're unlikely to need immediate access to your emergency fund, even when the unexpected happens.
• Instant access savings accounts
  These types of accounts give you ultimate flexibility. They let you withdraw money whenever you need it without penalties, and you can find some competitive interest rates on the market.

Check out Revolut Instant Access Savings

If you're ready to start building your emergency fund, Revolut Instant Access Savings is a great option to look into. You'll earn up to 5% AER² variable on your GBP balance, with interest paid daily. T&Cs apply.

Unlike other types of savings accounts that lock your money away for a set period of time, this one gives you instant access to your funds. You're free to add money at your own pace and make withdrawals whenever you need to — without any fees, penalties, or minimum balances to watch out for.

You can manage your savings safely from your app, with biometric technology designed to ensure only you have access to your money. For extra security, you can turn on the Wealth Protection feature and require selfie verification before every withdrawal.

The money you deposit in your Instant Access Savings is placed with a partner bank and is protected by the Financial Services Compensation Scheme (FSCS). The FSCS provides protection on eligible deposits up to £85,000 per person, per bank.³

With Revolut, you'll also get access to in-app budgeting tools that'll help you track your spending and meet your savings goals. You can create expense categories, set limits for each one, and get insights into your spending trends without spreadsheets or number-crunching. Everything you need to kickstart your emergency fund is in one app.

² The Annual Equivalent Rate (AER) shows the interest you can earn over 1 year. AER is compounded, so you’ll earn interest on interest already earned. Rates depend on your plan type, from up to 4% on our Standard plan to up to 5% on our Ultra plan. Paid plan subscription fees and T&Cs apply. Interest offered is subject to change and any interest earned is liable to the applicable taxes. T&Cs apply.

📚 New to savings accounts? Find out what AER means and how you can use it to calculate your interest earnings.

How to build an emergency fund​

Don't know where to start? Here are some practical steps that can help you start your emergency fund and stick to your savings plan.

1. Decide how much you want to save

This is a very personal decision that depends on your individual circumstances. You'll want to aim for at least 3 months' worth of living expenses, but more is always better.

To determine your total savings target, step back and consider things like:

• your income stability
• your living expenses
• dependents
• debt obligations
• health insurance coverage
• cost of living in your area
• other financial goals

2. Break down your target into monthly instalments

Setting out to save thousands of pounds may seem overwhelming, but don't worry — saving doesn't happen in a day. Dividing your target into manageable chunks can keep you motivated and on track. Here are some tips that'll help you do that.

• List all your sources of income.
  This includes your salary, bonuses, freelance work, rental income, and any other regular earnings. Then add everything up to get a clear picture of how much you're bringing in each month.
• Add up your monthly expenses.
  Estimate how much you need to cover all costs every month. This includes things like rent payments, utility bills, insurance premiums, loan repayments, and groceries. Add a buffer for variable expenses like clothing and entertainment.
• Determine how much you can afford to save each month.
  Subtract your expenses from your income. From that amount, how much can you comfortably send to your emergency fund monthly? If you're not sure, start small and work your way up. The key is to develop a regular savings habit.

There you have it — that's your monthly savings goal. With that as your north star, you're ready to map out an actionable savings plan.

3. Create a realistic savings plan

There are no unskilled savers, just poor savings plans. If you've ever committed to saving and fallen off the bandwagon, chances are you didn't have a solid roadmap in place. Check out these tips to set an action plan you'll actually stick to.

• Set up automatic transfers to your emergency savings.
  This is an effective trick to stay consistent and prioritise your savings as soon as your pay cheque lands. With Revolut Instant Access Savings, you can schedule recurring transfers right in-app and time them to perfection. Set them up daily, weekly, or monthly, and change the amount whenever you want to.
• Take advantage of features like spare change round ups.
  With Revolut, you can round up your payments and automatically send the difference to your savings account. It's another great hack to start saving without even thinking about it.
• Review your timeline.
  With the amount you're setting aside every month, how long will it take you to reach your target? Write that date on a sticky note and post it on the fridge to keep yourself motivated. You'll be one step closer to your goal every day.
• Challenge yourself.
  After a few successful months, step back and reevaluate. Can you afford to save a bit more? You might find that it was surprisingly painless and that you can send a little more to your savings account to shorten your timeline.

4. Keep your emergency fund topped up

Reaching your initial savings goal is a cause for celebration — but it doesn't end there. It's always beneficial to maintain and even grow your emergency fund. Here are some strategies you can use to keep it thriving.

• Keep making regular transfers to your emergency savings account.
  Consistency is key. Even if you decide to prioritise other savings goals and lower the amount you're setting aside, every bit adds up.
• Increase your contributions when you can.
  Got a raise? Made a big sale? Consider making a one-off transfer to top up your emergency fund, or even kick your monthly transfers up a notch.
• Set clear guidelines for your emergency fund usage.
  What do you consider an emergency? In what circumstances would it be okay to withdraw money? Having these guardrails in place will keep you accountable and prevent you from dipping into your emergency fund for other purposes.
• When you take money out, put it back in.
  If you do need to dip into your emergency fund, that's okay — that's what it's there for. That said, make sure you adjust your savings plan to build your fund back up as soon as possible.
• Adjust according to life changes.
  A growing family, a new job, or increased living costs may require you to revisit your savings plan. Stay flexible and be mindful of changes that could affect the amount you'll need in an emergency.

How long does it take to build an emergency fund?

The amount of time it'll take you to build your emergency fund depends entirely on what your overall target is and how much you're able to set aside regularly. To get an estimate, divide the total amount you want to save by the amount you plan to set aside every month. That'll give you the number of months left for you to reach your goal.

If you get a bonus at work, for example, you might be able to give your emergency fund a boost and shorten your timeline. Making one-off transfers whenever you have some extra cash on hand can help you reach your goal faster than you expect.

One thing's for sure — the sooner you start, the sooner you'll reach your savings goal. And the longer the money's in your savings account, the more interest you'll earn.

Boost your emergency fund with Revolut

Ready to start building your rainy-day fund? Revolut Instant Access Savings can help you get the most out of your money, keep yourself on track, and reach your goal faster.

You can grow your savings on auto, make one-off transfers, and even save while you spend with spare change round ups on your purchases — all while earning interest daily. And, if life happens, you can withdraw your money anytime.

Create a safe space to keep your savings and watch them grow, every single day.

📚 Saving up for something else? Check out our guides and explore some little-known money-saving tips.

How to save money for a wedding
How to save money for a holiday
How to save money for a car
How to save money for a house deposit
How to save money for Christmas
How to save money in 7 simple steps

¹ Statistics reported by Aldermore
² The Annual Equivalent Rate (AER) shows the interest you can earn over 1 year. AER is compounded, so you’ll earn interest on interest already earned. Rates depend on your plan type, from up to 4% on our Standard plan to up to 5% on our Ultra plan. Paid plan subscription fees and T&Cs apply. Interest offered is subject to change and any interest earned is liable to the applicable taxes. T&Cs apply.
³ Check out the Financial Services Compensation Scheme (FSCS) website for more information.