An Emergency Fund - You Should Have One
May 2005
Emergency Funds aren't really common in the UK but in America most forward thinking and responsible people have them in place.
So what is an Emergency Fund? Simple, a lump of money that's kept separate from everything else that's to be used if you suddenly lose your job, have a medical condition or some other unforeseen emergency. Personal finance professionals suggest a minimum of 3 months average spending but preferably up to six months.
Of course for most people especially those already on a tight budget it's not possible to suddenly divert this sort of money to a separate bank account so some budgeting and regular saving has to be done. Paying a certain amount each month into a new deposit account makes a lot of sense especially as direct debits are easy (if you have online banking) and free to set up.
It might take you 12-24 months of regular savings until the fund is fully invested so it's best to start as soon as possible.
Use a Different Bank Account
The number on rule for an Emergency fund is to separate it from your normal bank account by opening the deposit account with a completely different financial institution. But watch these financial institutions and do your research because many of them have opening bonus rates which pay top interest today but the rate goes markedly lower in say 6 months.
And don't be afraid of switching accounts if a better deal comes your way. It might only take 30 mins to switch and that could pay dividends of hundreds of pounds in extra interest. Even if it pays just £50 extra over a year it's not a bad return on 30 mins work.
Current Top Saving Deals
And Keep Saving
One final idea. If you decide to start up an Emergency Fund by making regular monthly payments don't stop paying money on when the fund reaches its financial goal. Financially you'll be acclimatised to putting aside a regular amount and most people these days can never have enough savings.
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