Some spending is easy to cut back on but other costs refuse to wait. If your boiler breaks down in the middle of winter or the car that you use for work packs up, you might find yourself falling back on your emergency savings.
Most people understand the importance of saving for a rainy day, but have questions when it comes to the specifics. How much should you hold in an emergency savings pot? Should your emergency fund be separate to money held for other savings goals? And which are the best savings accounts to keep your emergency fund in?
A lot depends on your age and personal circumstances (see our piece on average savings by age), but the general advice for working people is that they should keep enough money in an emergency pot to cover three to six months of essential spending. Retirees need even more and should target a pot that is big enough to cover one to three years worth of essential spending.
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Of course, it isn’t an exact science but these parameters can be a helpful starting point.
“If there are a number of people relying on your income and you have had health problems in the past or your income is variable, you’ll probably feel more comfortable holding more,” said Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown.
“If you have a secure job, good health, family to call on when things get tough and nobody else spending your income, you might be happier with less,” she adds. “Your considerations should also include how many earners there are in the family and the insurance cover you have in place.”
We take a closer look at how much the average person should have in emergency savings, before answering some frequently asked questions.
How much should I have in emergency savings?
Hargreaves Lansdown says the average household spends £2,111 on the essentials each month. Based on these assumptions, savers could target the following amounts in their emergency savings pot:
Period of essentials to cover | Amount of savings you need |
Three months | £6,333 |
Six months | £12,666 |
One year | £25,332 |
Three years | £75,996 |
The latest data from the Financial Conduct Authority suggests many are struggling to meet this baseline goal. One in ten have no savings at all, according to the City watchdog, while over a fifth have less than £1,000 set aside.
Separate data from the Office for National Statistics paints an even bleaker picture. The statistics authority found that 20% of families had no savings at all in 2023/24. This has risen from 18% two years ago (2021/22) and 14% in 2020/21, after a period of high inflation.
“It’s important to have a plan in place to handle unexpected expenses, as they can arise at any time and quickly derail your financial stability if you’re unprepared – but balancing this with both everyday costs and future planning can be difficult,” said Dean Butler, managing director for retail direct at Standard Life.
Butler recommends taking small but consistent steps. “Aim to set aside a small amount regularly, even if it’s just £10 or £20 a month, to build a buffer against unexpected costs. Over time, this can grow into a safety net that helps you avoid debt in emergencies,” he added. Setting up a monthly direct debit into your savings account could be the best approach.
How to calculate your specific requirements
Of course, the above figures are just a ballpark guide. Your specific requirements will vary depending on your lifestyle. To arrive at a more customised figure, look at your bank statements and work out how much you spend on essentials in the average month. This could include:
- Housing costs (mortgage payments, rental costs, home insurance, service charge)
- Council tax
- Energy bill
- Water bill
- Internet bill
- Phone bill
- Car insurance
- Food costs
- Transport costs (petrol, train tickets)
If you have people who are financially dependent on you, you should factor their costs in too. Again, your requirements will vary considerably depending on your lifestyle. For example, those with children in private school may wish to consider what a shock redundancy could mean for their child’s education. If you want your emergency pot to cover something like school fees, it will need to be considerably bigger.
When to use an emergency fund
An emergency fund is just that – for emergencies. However tempting it might be to dip into it to fund a holiday or a new purchase, it is a bad idea. The pot should be kept for shock life events like redundancies, car breakdowns or unexpected home repairs that need immediate attention.
If you are making a big purchase like buying a house, don’t be tempted to use your emergency pot to boost your deposit. Often, big life events like this come with unexpected costs – for example a boiler that suddenly needs replacing. As such, it can actually be a sensible time to boost your emergency savings, even if that means waiting slightly longer to achieve your long-term goal of getting on the property ladder.
Where to put your emergency savings
When choosing an account for your emergency savings, there are two main considerations – accessibility and interest rate. Always opt for an easy-access savings account with no withdrawal restrictions so that you can get your hands on the money as soon as you need it.
Once this has narrowed the list down, choose the account with the highest interest rate (always checking that the account is protected under the Financial Services Compensation Scheme).
Don’t just keep the money in your current account, where you will be tempted to spend it and where it won’t earn much interest. Ringfence your emergency fund from your other savings pots too, so that you know what you are dealing with.
When choosing an account, it makes sense to opt for a regular savings account rather than an easy-access cash ISA. This means you won’t erode your annual ISA allowance by putting money into the tax-free account that you later need to access (although a flexible ISA could help you get around this).
These are the top easy-access savings accounts on the market at the moment:
Account | Rate (AER) | Notes |
Cahoot Sunny Day Saver | 5% | Rate paid on balances up to £3,000. |
Chip Easy-Access Saver | 4.77% | Rate includes a 1.42% bonus for 12 months. Lower rate is paid if more than three withdrawals are made per year. |
Atom Bank Instant Saver Reward | 4.75% | Lower rate paid if a withdrawal is made in any given month. |
West Brom Building Society – Four Access Saver | 4.65% | Lower rate paid if more than four withdrawals are made per annum. |
Chase Saver With Boosted Rate | 4.5% | Rate includes a 1.69% bonus for six months. |
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