How much should you have in an emergency fund?
A simple way to work out your number, where to keep the money and how to build it.
The short answer
An emergency fund is money set aside for the unexpected, like a broken boiler, a car repair or a gap in your income. A common rule of thumb is three to six months of essential spending. If you are self-employed, or your income is less certain, aim for the higher end. Start with a small first goal, such as £500 or one month, and build up.
How much do you need
Add up your essential monthly costs: rent or mortgage, bills, food, transport, insurance and minimum debt payments. Do not include things you could cut in a crisis. Multiply by three to six. For example, essentials of £1,800 a month mean a fund of £5,400 to £10,800. The budget helper can help you find your figure.
Where to keep it
- Somewhere easy to access, like an easy-access savings account or cash ISA.
- Separate from your everyday account, so you are not tempted to dip into it.
- Not in investments that can fall in value. The point is that the money is there when you need it.
Look for an account that pays a decent rate and has no withdrawal limits. Interest is taxed above your personal savings allowance, see how is savings interest taxed, but a cash ISA keeps it tax-free.
How to build one
- Set up a standing order on payday, even a small one.
- Put unexpected money, like a tax refund, straight in.
- Use the savings calculator to see how long it will take.
- If you have debt with high interest, many people build a small buffer first, then pay off the debt, then grow the fund. See free debt advice if you are struggling.
When to use it
Use it for real emergencies, not for planned costs like holidays. Once you have used it, top it back up as your next priority.
Where to learn more
This guide is for information only and is not financial advice.