Emergency fund

Emergency fund

A reserve of cash kept available to meet the costs of any unexpected financial emergencies.

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Emergency fund. An emergency fund is designed to provide financial back-up for unexpected expenses or for a period when you aren't working and need income.

To create an emergency fund, you generally accumulate three to six months' worth of living expenses in a secure, liquid account so that the money is available if you need it.

It's a good idea to keep your emergency fund separate from other savings or investment accounts and replenish it if you withdraw. But you don't have to limit yourself to low-interest savings accounts, and might consider other liquid accounts, such as money market funds, that may pay higher interest.

If you're single or have sole responsibility for one or more dependents, you may want to consider an even bigger emergency fund, perhaps large enough to cover a year's worth of ordinary expenses.