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. Fund Of Funds

    A mutual fund that invests in other mutual funds. This method ...
  4. Credit Card Funding

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

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

    An account that is set up within a fund to hold a balance as ...
Related Articles
  1. Investing

    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. Savings

    Why Emergency Funds Are A Bad Idea

    Learn why taking the time to build an emergency fund is a staggeringly inefficient use of the precious and limited resource that is your money.
  3. Budgeting

    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. Savings

    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.
  5. Mutual Funds & ETFs

    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.
  6. Mutual Funds & ETFs

    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?
  7. Mutual Funds & ETFs

    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. Savings

    Emergency Funds That Are Right For Your Tax Bracket

    How much you need to sock away depends on how much money you'll need down the road.
  9. Mutual Funds & ETFs

    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.
  10. Credit & Loans

    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
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. 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 >>
  4. 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 >>
  5. How do I calculate the loan-to-value ratio using Excel?

    Learn what a mutual fund and a money market fund are, and understand the differences between each and how they serve various ... Read Answer >>
  6. What determines the interest rate in my money market account?

    Placing funds in a money market account may provide a higher interest rate than a savings account due to the underlying securities ... Read Answer >>
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center