Emergency Fund

Loading the player...

What is an 'Emergency Fund'

An emergency fund is an account that is used to set aside funds to be used in an emergency, such as the loss of a job, an illness or a major expense. The purpose of the fund is to improve financial security by creating a safety net of funds that can be used to meet emergency expenses as well as reduce the need to use high interest debt, such as credit cards, as a last resort.

BREAKING DOWN 'Emergency Fund'

Most financial planners suggest that an emergency fund contain enough money to cover at least three months of living expenses. Note that financial institutions do not carry accounts labeled as emergency funds; it is up to the individual to set up this type of account.

Most emergency funds are highly liquid, such as checking or savings accounts. This allows quick access to funds, which is vital in emergency situations.

RELATED TERMS
  1. Emerging Market ETF

    An exchange-traded fund that focuses on the stocks of emerging ...
  2. Fund

    A source of money that will be allocated to a specific purpose. ...
  3. Credit Card Funding

    The ability to electronically fund a new account, business, or ...
  4. Total Annual Fund Operating Expenses

    For a mutual fund or other type of fund management structure, ...
  5. Temporary New Account

    An account that is set up within a fund to hold a balance as ...
  6. Money Market Fund

    An investment fund that holds the objective to earn interest ...
Related Articles
  1. Personal Finance

    Why You May Not Need an Emergency Fund

    Emergency funds are considered mandatory by most financial-planning experts, but they can be expensive to hold and ultimately unnecessary.
  2. Personal Finance

    Why Emergency Funds Are A Bad Idea

    Building an emergency fund is common financial advice. But there are times when it’s not the most prudent move to make.
  3. Personal Finance

    Building An Emergency Fund

    An emergency fund can mean the difference between tough times and a total financial disaster. Find out how an emergency fund works and why you need one now.
  4. ETFs & Mutual Funds

    3 Emerging Markets Vanguard Funds

    Explore a detailed analysis of three Vanguard emerging markets mutual funds, and learn about the characteristics and suitability of these funds.
  5. ETFs & Mutual Funds

    Time to Add Emerging Markets to Your Portfolio?

    Now that emerging markets are out of favor, is it time to add them to your portfolio?
  6. ETFs & Mutual Funds

    The 3 Best ETFs to Short Emerging Markets Equities (EUM, EEM)

    Discover the emerging markets equity asset class, and learn about three different ETFs you can use to get varying amounts of short exposure to it.
  7. ETFs & Mutual Funds

    3 Emerging Markets Equity Mutual Funds to Avoid in 2016 (TPECX, PCEFX)

    Learn about how emerging market stocks have fared in 2016, where developing stocks could be heading, and three emerging market mutual funds to avoid in 2016.
  8. ETFs & Mutual Funds

    3 Emerging Markets Equity Mutual Funds for Bull & Bear Markets

    Discover three strong emerging markets mutual funds suitable for investors willing to accept a higher degree of risk and volatility.
  9. Markets

    Saving Money Or Paying Off Debt?

    When choosing between blasting through debt and establishing precautionary funds in case of an emergency, the right course of action is rarely self-evident
  10. ETFs & Mutual Funds

    3 Best Dividend-Paying Emerging Markets Equity Mutual Funds (VEIEX, EMBIX)

    Learn about emerging markets and how your portfolio can benefit from them. Discover three unique high-dividend-paying emerging market mutual funds.
RELATED FAQS
  1. Why do you need an emergency fund?

    An emergency fund is very handy when unplanned and unexpected expenses arise. It is always advisable to have some money tucked ... Read Answer >>
  2. How much money should I have in a savings account?

    Read a brief outline of the purpose of savings accounts, emergency funds and how to determine how much money to store for ... Read Answer >>
  3. I have $15,000 to invest. What should I do?

    Should I put the money into a CD.  ... Read Answer >>
  4. I want to invest my emergency fund to earn interest. What is a relatively safe and ...

    When considering where to put your emergency money, a key consideration is making sure you'll be able to access the money ... Read Answer >>
  5. How much of my total assets should I be keeping in my money market account?

    Investing a portion of total assets in a cash position such as a money market account provides investors access to funds ... Read Answer >>
  6. When is an expense ratio considered high and when is it considered low?

    Discover what is considered an exceptionally high or low expense ratio for a mutual fund or ETF, and learn why this figure ... Read Answer >>
Hot Definitions
  1. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  4. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  5. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  6. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
Trading Center