Let’s be real: Emergencies don’t RSVP.

They show up unannounced-usually at the worst possible time-and demand your attention and your money. Maybe it's a broken water heater, a fender-bender, or an unexpected vet bill. Whatever the curveball, your best defense is a well-stocked emergency fund-think of it as your financial first responder.

What Is an Emergency Fund?

An emergency fund is a pool of money you set aside specifically for life's unexpected expenses. It's your "just in case" money that keeps you from having to reach for a credit card (which means taking on debt), borrow from your retirement fund (or friends), or raid savings that have been earmarked for a well-earned vacation.

How Much Do I Need?

Maybe not as much as you think. You may have heard the advice that you need to save three to six months’ worth of essential living expenses—and if you can get there, that amazing! But newer research suggests that even six weeks of expenses can provide a strong safety net.

 Here’s how to break it down:

• Start with a goal of saving $2,000. That’s a milestone that half of Americans haven’t yet hit. Reach it, and you’re already ahead.
• Don't get overwhelmed. If saving six weeks' worth of expenses feels like too much, start smaller: Try $10, $20, or $50 a week. The key is to begin. Set up an automatic transfer into a separate savings account so you have to make a good decision each time you want to save. You may not even notice the money's gone.
• Remember, you're saving to cover the essentials only: Rent or mortgage, utilities, groceries, insurance, gas to get to work. Not Netflix.

Your Best Emergency Fund Account Options

Once you're building an emergency stash, you'll want to keep it somewhere liquid, accessible and safe. The top places to keep your emergency savings include: 

1. High-Yield Online Savings Account

These accounts are easy to open and typically offer solid interest rates—check with your credit union to see the rates that are currently on offer.  They’re also easy to access, making them an ideal home for emergency funds.

That said, watch out for teaser rates that drop after a few months, or minimum balance requirements that-if you don't meet them-can eat into your expected returns. Always read the fine print before you commit.

2. Money Market Account (MMA)

Money market accounts function a lot like high-yield savings accounts, but they may also offer check-writing privileges or debit card access, which can be helpful in an emergency. Their interest rates are often competitive, too. However, many MMAs come with higher minimum balance requirements, and some limit the number of withdrawals you can make per month. If your balance dips too low, you could be penalized, so make sure to do your homework.

3. Certificates of Deposit (CDs)

CDs can be a solid option if you’re looking for guaranteed returns over a set period of time — whether that’s 6 months, 1 year, or longer.  With a CD, you commit to allow the credit union or bank to keep your money for that period.  Because your money is locked in, CDs often offer higher interest rates than savings accounts. The trade-off is liquidity. If you withdraw money before the CD matures, you’re “breaking” the CD, which typically results in a penalty of a few months interest. One workaround is a CD ladder—opening several CDs with staggered maturity dates. CDs are best suited for more established savers who already have six months or more of living expenses set aside elsewhere.

3 Must-Haves For Your Emergency Fund

Above all, your emergency fund should be: 

Somewhere safe: You want zero chance of losing this money. For that reason, your emergency fund does not belong in the stock market.  It also does NOT belong in your checking account (where you’re likely not earning any interest), in a shoebox under the bed, or in the freezer hidden behind a bag of frozen peas. Stick to accounts that are NCUA-insured and low-risk, like high-yield savings accounts, money market accounts, or certificates of deposit (CDs).

Accessible (but not too accessible): You should be able to get to your emergency fund quickly—but not so easily that you’re tempted to use it for everyday spending. Keeping it in a separate account can create helpful friction. That way, you won’t impulsively dip into it for non-emergencies.

Earning some interest: While this isn’t an investment account, your money should still be working for you. If it’s been a while since you called to check on the interest rate you’re getting, pick up the phone to chat with your credit union professional and make sure you’re locked in where you need to be.

Your Next Steps

Think of your emergency fund as the financial equivalent of a seatbelt. You might not think about it much, but when you gotta slam the brakes, you'll be glad it's there. 

Start with what you can and keep going until you've built a cushion you can sleep soundly on. And if you need some additional hand-holding when it comes to building a personalized financial plan (and freeing up some cash for your emergency fund!) then check out the FinanceFixx coaching program, which hundreds of people have successfully used to help gain control of their money. 

Did you know?

En Cal Coast ofrecemos asesoramiento financiero gratuito. We are proud to offer our members free one-on-one coaching with a Certified Financial Coach as part of our Financial Fitness Program. Este programa se inició hace más de 10 años para ayudar a nuestros miembros a llevar sus habilidades presupuestarias al siguiente nivel, comprender mejor cómo mejorar su puntaje de crédito, ahorrar para los objetivos de la vida (y los momentos inesperados) y, en general, vivir una vida financieramente más próspera. Conoce más aquí.