How to build up an emergency savings fund

Updated on 29 January 2019

Simple steps to help you build up an emergency savings pot.

Don't leave yourself vulnerable

A staggering 37% of families in England say they would be unable to cover housing costs for more than a month if one partner lost their job.

That’s according to research from housing charity Shelter, which highlights how many households have little to no savings set aside to cover an unexpected financial disaster.

If you want to want to build up an emergency savings fund, read on to find out how.

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Set yourself a target

1. Setting a savings target right at the beginning will give you something to aim for and a better chance of achieving your goal. But make sure your target is realistic. Not too much, but more importantly not too little.

2. You should try to build up a savings pot of at least three months' salary, so you'll have enough money to cope if you lose your job or suffer some sort of emergency. In the current economic climate, with rising unemployment, this savings cushion should ideally cover you for at least six months.

3. Don't worry if that sounds like a lot of money to put away. Just save what you can afford even if it's only a small amount every month. You'll be surprised how quickly your emergency fund grows. Set up a Direct Debit or standing order into your savings account, which collects the money from your current account the day after you get paid. That way, you can be sure you'll manage to save something every month.

4. Most importantly of all remember this is your emergency savings so don't be tempted to dip into it for other non-essential spending. For example, if you want to save some money towards a holiday, make sure you put it away in a separate account. It's important to keep your emergency fund for that purpose alone.

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Squeeze down your budget

1. If you’re finding it hard to save, see if you can make cutbacks elsewhere to free up some spare cash. The best way to help you do this is to keep a spending diary.

Once you've done that, you should be able to identify areas where you're spending a little more than you should be. This money could be put to far better use in your emergency savings account.

2. You'll find that all good savers are great at budgeting. For more tips on how to do that, read How to budget in five simple steps

Also, take a look at what everyday spending you could cut back on or cut out altogether. There are loads of great guides in this section with tips on how to just do that.

3. If you're finding it difficult to squeeze down your budget any more than it already is, you could think about taking some steps to earn a bit of extra every month instead. Read 21 easy ways to make money for some great ideas.

4. To give your savings pot an extra boost, track down any funds you’ve forgotten about. You'd be amazed how many millions of pounds are languishing in current accounts and savings accounts which haven't been touched in years.

Thankfully, there is a simple process for reclaiming what is rightfully yours: learn more by reading this article

Build up an emergency savings pot

Choose the right type of account
First and foremost you need to choose the right type of account for your emergency savings fund. It may sound obvious, but make sure you choose a home which offers full easy access to your cash.

That means you should avoid notice accounts – there's no use in waiting 30 or 60 days for your money to arrive if you need it today. Also say no to fixed rate bonds. You may earn better rates in a bond, but your money will be locked away often with no permitted withdrawals.

Avoid regular savings accounts
Also think twice about putting your money in a regular savings account. These accounts are very tempting with very generous rates, but you'll usually find that you'll lose some interest whenever you take money out. And if you fail to make a deposit in any month, you'll almost certainly be penalised. Regular savers are quite restrictive and may not be the best place for your emergency savings.

Find the best easy access account
The best way to make the most of your emergency savings is to put them in the most competitive easy access savings account you can find. Choosing a best buy account with a market-leading rate will boost the overall return on your cash.

Search the entire market
To do that all you need to do is compare savings accounts at the savings centre. This will enable you to hunt down the very best rates quickly and easily.

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Look out for catches

1. When you choose your savings account, make sure you read all the terms and conditions carefully before you sign on the dotted line. This is the one and only way to make sure you don't get tripped up by a nasty catch further down the line.

2. With an emergency savings account, it's particularly important to check if you’re entitled to penalty-free instant access whenever you need it.

These days an awful lot of accounts are marketed as easy access even though they have strict limits on when you can make a withdrawal. 

3. Many easy access savings accounts offer a juicy temporary bonus as part of the return which will disappear often, after a year. This normally means the rate will drop dramatically once the bonus period is over. This is a good time to review your savings, and switch to a new account if necessary.

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