How to start an emergency fund

02 August 2023


Atom bank
Atom bank
A women in a yellow jumper holding a yellow piggybank

How to start an emergency fund

We’ve all experienced unexpected cashflow problems at one time or another. From a hefty household bill to a surprise loss of income, any unplanned expense can really take its toll on your financial stability.

Creating a dedicated emergency fund is a great way to cushion yourself from a financial blow. By putting cash aside for a rainy day, you’ll be better prepared for unplanned expenses and able to recover from them far quicker than you may have done without it.

Not sure where to start? Our guide will get you moving in the right direction.

What is an emergency fund?

An emergency fund is — quite literally — money for emergencies. It’s savings that you put to one side to cover an unexpected financial expense, such as car repairs, a leaky roof or losing your job. It doesn’t matter whether it’s a hefty or small expense, if it’s not part of your regular payment routine, then an emergency fund can help lessen the impact.

The benefits of an emergency fund


Let’s start with the obvious benefit of building up a rainy day fund. When you have a bit of money saved away — say, enough to cover your living expenses for a while — you provide yourself with a stable platform to go ahead with a big life change. Whether this is as a buffer for when you switch careers or a fund for covering the extra costs of moving out of your family home, you’ll have the financial freedom to do so.

Space to breathe

Making the right decision can sometimes be challenging, particularly when it comes to your bank balance. Having a rainy day fund gives you the breathing space to think rationally and not jump into a financial commitment that you can’t sustain. For example, if you get made redundant, but have a rainy day fund to support you, you’ll be less likely to race into a new position that you’re not ready for.

Financial discipline

When you start to put money aside for a rainy day, you’ll develop a saving habit that will prove useful for the rest of your life. This financial discipline can play a big role in building your future and reaching your life goals. It’s also important to remember that if you’re saving a little at a time, try not to get hung up on the amount. Instead, you should give yourself credit for performing a positive action. If you want more inspiration on how you can get into the habit of saving, we’ve put together 8 savings challenges to get you started.

How much should I have in an emergency fund?

Like anything in life, this is dependent on the circumstances. We suggest starting off by thinking about the most common unexpected expenses and how much they can set a person back. For example, what’s the average cost for a full repair on your current car? Understanding how much things cost can really help you set your goal.

However, if you’d prefer to have a more concrete goal to aim for, a solid rule of thumb is to save up at least three months’ essential outgoings (i.e. enough to cover your mortgage or rent, groceries, bills, any debts or loans and any other essential financial responsibilities). Again, it’s worth bearing in mind that any savings are better than none, so even a smaller fund is preferable to not starting one at all.

Steps to building your emergency fund

Method 1: Get into the ‘saving’ mindset

Creating a savings habit is one thing, but sticking to it is another. If saving money isn’t something that comes naturally to you, then it’s likely that you’ll need to reshuffle your priorities. Setting a savings goal can build up momentum and encourage you to meet your own expectations — especially when you’re just getting started.

It’s important to regularly check in on your savings, too. Saving through a banking app, such as the Atom app, ensures that you can quickly and easily check in on your account, which will help you visualise your progress and stay on top of your goal.

Setting up a regular, automatic deposit can be a good way to take a lot of the thought out of a savings habit. Just make sure it’s an amount you can regularly afford to put aside.

Need more advice on how to build a savings habit? Read this blog post for extra tips.

Method 2: Manage your cash flow

Do you struggle to understand and organise your outgoings? Managing your cash flow and familiarising yourself with exactly what it is you spend your money on will help you stick to realistic saving expectations.

By simply mapping out your expenses, you’ll be able to plan out your cash flow so that it aligns with your payments. For example, adjusting the date you pay particular bills to a more manageable date may help you to save more.

Method 3: Take advantage of saving opportunities

Are you expecting an influx of money sometime soon? If you’re lucky enough to have a lump sum on the way, it’s worth making the most of the opportunity and planning your savings contribution in advance.

Whether it’s a tax rebate or a Christmas gift, unexpected (but most welcomed) money could help build your savings up faster than planned.

If you receive a lump sum and don’t want to immediately spend it, you may wish to grow it in a fixed rate savings account, such as one of our Fixed Savers. We’ll talk about these in more detail in the next section, but they essentially work by locking your money away for a time in exchange for a higher savings rate.

Where should I keep my emergency fund?

Like anything of great value, where you store your rainy day fund is important. It needs to be kept somewhere safe and accessible, but not so accessible that you’re tempted to continuously dip into it. If the piggy bank isn’t secure enough, you need to find a savings account that’s right for you.

Easy access savings account

An easy access savings account, such as our Instant Saver, may be appropriate. You’ll be able to withdraw money whenever you please — a great option if you’re able to stay disciplined with money but still like the idea of some flexibility. They’re also a popular choice for an emergency fund, as you can get access to your cash right away when the unforeseen happens and you have to cover a cost.

Fixed rate savings account

However, if you need more explicit boundaries, a fixed rate savings account, like our Fixed Saver account may be a good choice. These accounts work by locking your money away for an agreed period of time in return for an interest rate that is typically higher than easy access accounts. Just bear in mind that once you put your money in, you can’t just withdraw it again casually like you can with an easy access account.

Fixed rate accounts may or not be suitable for your growing emergency fund, depending on your circumstances. On one hand, they might not be right for you if you’re building up a pot of money but don’t have certainty you won’t have to use the cash in a pinch. However, if you have a lump sum or you’ve already saved up a bit of money (and know you won’t dip into it), they can be a good way to grow it further.

Should you still be in two minds, we’ve put together a handy guide to help you decide on the best savings account for you.

Other ways of dealing with unexpected costs

If you’re yet to start your rainy day fund and want to explore other options, it’s always a good idea to get an outsider’s opinion. If you’re going through financial hardship, you could confide in a family member or a close friend, or you could speak to a specialist at one of the many organisations that offer free advice, including:

You should also speak to your bank or any lender as soon as you know you may have money troubles. They can then take steps to help you manage the situation. If you’re an Atom customer, head to our dedicated money worries page to see how we can help.

Other options you may consider involve taking on debt, such as getting a credit card, personal loan or an arranged overdraft to help you temporarily cover your financial burden. However, it’s important to remember that these come with fees and interest rates. Before making any decision about borrowing money, it’s essential that you assess the risks and understand the potential costs. It could also be worth speaking to a financial adviser before making an important decision that might have ramifications later.