An emergency fund can help you deal with life's unexpected events. Learn how much you should save and where to keep your emergency savings.
Nicole Townsend, CFA
Nicole Townsend leads Investment Product Strategy in Vanguard Personal Investor, where she conducts investment product research to inform decision-making and strategic action on Personal Investor's product portfolio. In her role, Nicole advocates for the needs and preferences of Vanguard clients as part of the enterprise investment product research process focused on Vanguard's mutual fund and ETF offerings. Prior roles Nicole has held include strategy engagement manager for Vanguard Wealth Management, fixed income specialist in the Portfolio Review Department, as well as a variety of roles held within the Finance division.
Nicole earned a B.A. and a B.S. from the University of Delaware and holds the FINRA Series 7 and 63 licenses. She's a Chartered Financial Analyst® (CFA®) charterholder and a member of the CFA Society of Philadelphia.
Ariel Finegold, CFA
Ariel Finegold leads the Investment Product Strategy and Enablement team for Vanguard's Personal Investor division. She previously served as senior director of Vanguard's Private Equity team, where she helped create and oversee Vanguard's private equity offer since joining the company in 2019. Before that, she invested in traditional private equity and venture capital in the investment offices of Princeton University and the William Penn Foundation.
Ariel earned a B.A. in economics with honors from Swarthmore College and an M.B.A. from Harvard Business School. She's a Chartered Financial Analyst (CFA) charterholder.
Emergency fund: Why you need one
Unexpected expenses and changes to income can arise throughout a person's lifetime. You can prepare for emergencies by creating a savings plan and making sure you're storing your savings in the best possible way.
What's an emergency fund?
An emergency fund is an amount of money set aside to cover the financial surprises life might throw your way. These unexpected events can be stressful and costly.
Here are some of the most common financial emergencies people face:
- Job loss.
- Medical or dental expenses.
- Unexpected home repairs.
- Car troubles.
- Unplanned travel expenses.
What's the right emergency fund amount?
A common rule of thumb suggests that to be conservative, people should have 3 to 6 months' worth of expenses set aside for emergency financial needs—notably unexpected expenses or changes to income.
There are two main reasons to tap into your emergency funds: spending shocks and income shocks.
Spending shocks. Spending shocks are relatively common unanticipated expenses. They can include costs such as unforeseen health care needs, home repairs, or other unplanned costs. To prepare yourself for potential spending shocks, experts suggest it's best to aim to save half a month's worth of living expenses or $2,000—whichever is greater.
Income shocks. Income shocks may arise less frequently than spending shocks and are instances such as unexpected job loss or a notable decline in income. To prepare for income shocks, many experts suggest keeping enough money in your emergency fund to cover 3 to 6 months' worth of living expenses.
So if you spend $5,000 per month, your first emergency fund savings milestone should be $2,500 to cover spending shocks. For your longer-term goal of an emergency fund that will cover income shocks, aim to save $15,000 to $30,000 total.
A range of other factors could influence how much you need to allocate toward your emergency fund. To better assess your personal financial situation, use the following table to determine if you might need to save more or less than what most experts recommend.
Many factors can affect savings needs
| Factor | More savings needed | Less savings needed |
| Income | Single | Dual |
| Dependents | Yes | No |
| Income variability | More | Less |
| Spending flexibility | Less | More |
| Job security | Less | More |
| Job skills | Highly specialized | Generalized |
| Insurance | Less | More |
| Alternative financing | Low borrowing ability | Alternatives available |
| Portfolio composition | Exposed to market risks | Cash |
Source: Vanguard
Where to put your emergency fund
Since spending shocks can occur at any time, investments that offer safety and liquidity are most appropriate for emergency savings. These can be checking and savings accounts, money market funds, or cash management accounts, such as the Vanguard Cash Plus Account.
When deciding how to allocate your savings, Vanguard recommends you consider the following:
Ease of account use
A checking or savings account features an account and routing number which you can use for everyday spending needs and recurring payments, in addition to easy access to your money to meet emergency financial needs. Checking and savings accounts also offer Federal Deposit Insurance Corporation (FDIC) insurance, protecting you against a loss of account balances if those institutions were to fail financially.
Conversely, money market funds are typically held within a brokerage account and represent a type of mutual fund that invests in extremely short-term, highly liquid securities. Money market funds held within a brokerage account may be eligible for Securities Investor Protection Corporation (SIPC) coverage. Similar to FDIC insurance, SIPC coverage protects brokerage accounts if the firms were to fail financially.
Are you saving with us? Open an account now
Yield or return
Although checking and savings accounts and money market funds represent some of the safest and most liquid options, these choices vary in terms of the yields or returns they offer on your savings. For example, in most cases, money market funds offer a higher yield than checking accounts offer. But overall, when you allocate savings to cash, you choose to trade the potential investment return of a balanced portfolio for the security of better preserving your principal amount. That's why choosing a competitive yield that can help increase the value of your cash portfolio is a critical consideration in addition to safety.
What options does Vanguard offer for emergency savings?
Vanguard recently introduced the Cash Plus Account as our savings account alternative that can help support investors in achieving their emergency savings goals.
The Cash Plus Account provides access to:
- A competitive annual percentage yield (APY) of 3.65%—notably higher than the 0.40% average savings account interest rate.1
- Familiar bank account features such as an account number and routing number.2
- Up to 5x the FDIC insurance you can get from a single bank.3
The Vanguard Cash Plus program APY (annual percentage yield) is -% as of -. The APY will vary and may change at any time. Source for average bank savings yield of 0.40%: FDIC National Rates and Rate Caps as of September 15, 2025.
Many of our clients use the Cash Plus Account not only for emergency savings, but also for daily cash needs. For instance, the Cash Plus Account can work with payment apps such as Venmo or PayPal for everyday use.2 In addition, the Cash Plus Account provides the option to invest in money market funds, including municipal money market funds for investors in higher tax brackets who could benefit from tax-free income on their savings. Ultimately, the Cash Plus Account allows Vanguard investors to pursue their holistic financial goals, both for the short and long term, in one place.
Learn more about your savings options
Benefits of having an emergency fund
Aside from financial stability, there are other pros to having an emergency reserve of cash.
It can prevent you from making bad financial decisions
There may be other ways you can quickly access cash, like borrowing, but at what cost? Well, there are interest charges, fees, and penalties—to name a few. Ultimately, a primary benefit of achieving an emergency savings goal is avoiding expensive financing for unplanned costs, such as the use of credit card debt or other high-interest options.
It can help reduce stress
It's no surprise that when life presents an emergency that threatens your financial well-being, it causes stress. Going through life without a safety net is living on the financial edge, hoping to get by without running into a crisis.
Being prepared with an emergency fund gives you the confidence to tackle unexpected events without adding money worries to your list.
It can keep you from spending on a whim
You've heard the saying "out of sight, out of mind." That's the best way to store your emergency money. By putting it in a separate account, you'll know exactly how much you have—and how much you may still need to save. And you'll be less inclined to tap into it before the need arises.
Avoid these 5 ways to pay for emergencies.
How to build an emergency fund in 6 steps
How can you get started on building an emergency fund? Let's chart the course.
Ready to get started? Start your emergency fund