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Headlines
- Over half of Americans have at least three months of emergency savings.
- Emergency funds help avoid debt during unexpected expenses.
- Steps to build emergency savings include opening a high-yield savings account, contributing regularly, and automating transfers.
Emergency funds are a topic where financial experts generally agree. The traditional guidance is to have enough savings to cover three to six months of living expenses. It’s also wise to keep that money in a high-yield savings account to maximize interest earnings.
The State of Emergency Funds Among Americans
Over half (54%) of Americans have at least three months of emergency savings, according to data collected by the Federal Reserve in 2023. This percentage is unchanged from 2022 but has decreased from 2021, when 59% of Americans had three or more months of emergency savings.
Despite this decline, it’s encouraging that many people have built their emergency funds. Having money saved for emergencies means you don’t need to go into debt if you face a health issue, need home repairs, or encounter other unexpected bills. An emergency fund benefits both your finances and your peace of mind, and can also impact financial stocks.
Top High-Yield Savings Accounts of 2024
- American Express® High Yield Savings
- CIT Platinum Savings
- UFB Portfolio Savings Account
How to Build Your Emergency Savings
If your emergency fund isn’t where you’d like it to be, don’t feel discouraged. After all, 46% of Americans haven’t saved three months of expenses, so it’s a common challenge. Here’s what you can do to increase your emergency savings.
Set Up a High-Yield Savings Account
If you haven’t already, open a high-yield savings account. Only 34% of Americans have one, according to research by The Ascent. Most people miss out on substantial interest earnings, as high-yield accounts currently offer rates of 4% to 5% or more.
Make sure to set up a sub-account for your emergency fund. Some banks call these sub-accounts savings buckets. This keeps your emergency fund separate from the rest of your savings, making it easier to track and ensuring it’s reserved for emergencies only.
Determine a Monthly Contribution
Building an emergency fund usually doesn’t happen overnight. For most people, it’s a process that involves saving what they can each month.
Review your finances, including your bills and income, to determine a realistic amount you can save. It could be $50 per month, $100, or $1,000 — whatever works for you. The more you can save, the faster you’ll build your emergency fund. Choose an amount you can comfortably afford, so it’s sustainable month after month.
Automate Your Savings
Once you have an account for your emergency fund and know how much you’ll contribute, the next step is ensuring you save that money.
To make this happen, schedule an automatic transfer from your checking account to your savings account. The best time to schedule this is right after you get paid. For example, if your paycheck is deposited on the 1st of every month, set up a transfer to your savings on the 3rd or 4th (to allow some buffer time for any delays).
This practice is known as paying yourself first. Instead of waiting until the end of the month to see how much money you have left, you prioritize saving by doing it before spending any of your paycheck.
By following these steps, you can build an emergency fund and achieve other savings goals. It takes time, but consistency is key. And if you want to save more, consider finding ways to reduce your spending or explore additional income sources.
