One in ten have no savings at all, while over a fifth have less than £1,000, leaving them vulnerable to unexpected events. How much should you have in emergency savings?
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:
Swipe to scroll horizontally
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 (the latest figures available). This has risen from 18% two years ago (2021/22) and 14% in 2020/21, after a period of high inflation.
StepChange Debt Charity puts the figure at almost one in four adults (23%), with many turning to unaffordable borrowing in moments of crisis, particularly if a poor credit score or thin credit record rules them out for more reasonable options.
“Too many people have nowhere to turn in an unexpected financial emergency. It’s not uncommon to rely on credit when finances are tight, but too many are being tipped into financial crisis because they don’t have access to safe options to cope with unpredictable expenses,” said Vikki Brownridge, the charity’s chief executive.
Higher living costs have made it difficult to save, but starting small is better than doing nothing at all. Even £10, £20 or £50 a month could build into a meaningful sum over time. Consider setting up a direct debit into your savings account so you don’t forget.
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 could make sense to opt for a normal 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). That way, you can preserve your ISA allowance for other savings goals, provided you are able to contribute to other pots at the same time as your emergency fund.
Lower rate paid if a withdrawal is made in any given month.
Snoop Easy Access Savings Account
4.6%
N/A
Chip Instant Access Account
4.56%
Rate includes a 1.28% bonus for 12 months.
Cahoot Simple Saver
4.55%
Rate paid on balances up to £500,000 (but remember only £85,000 is covered under the Financial Services Compensation Scheme).
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Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.
Katie believes investing shouldn’t be complicated, and that demystifying it can help normal people improve their lives.
Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.
Katie loves writing and studied English at the University of Cambridge. Outside of work, she enjoys going to the theatre, reading novels, travelling and trying new restaurants with friends.
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