Short answer: the CFPB describes an emergency fund as “a cash reserve that’s specifically set aside for unplanned expenses or financial emergencies”, and says “even a small amount can provide some financial security” (CFPB, read October 30, 2026). Money you have saved does not charge interest; money you borrow does. This is general information, not financial or tax advice.
What the Federal Reserve survey found
In the Federal Reserve’s report on 2025, published May 2026: “Sixty-three percent of adults said they would cover a hypothetical $400 emergency expense exclusively using cash, savings, or a credit card paid off at the next statement”. The report says this share was unchanged from the previous three years and down from 68 percent in 2021 (Federal Reserve SHED).
Why borrowing costs more
The CFPB says: “If you use a credit card or take out a loan to pay for these expenses, your one-time emergency expense may grow significantly larger than your original bill because of interest and fees” (CFPB).
How much to aim for
The CFPB says the amount “depends on your situation”, and suggests thinking about the unexpected expenses you have had in the past and what they cost to set a goal (CFPB). The CFPB also points to its savings planning tool to see how long a goal will take.
Ways to save automatically
- Recurring transfers: set up automatic transfers from checking to savings through your bank or credit union. The CFPB suggests watching your balance so an automatic transfer does not cause an overdraft fee (CFPB).
- Split direct deposit: if you are paid by direct deposit, ask your employer whether you can divide your paycheck between checking and savings (CFPB).
- Tax refund: the CFPB suggests putting all or part of a large check, such as a tax refund, into savings (CFPB).
- Track progress: a balance notification or a running total of what you put in can keep you going (CFPB).
Where to keep it
The CFPB says the fund should be “safe, accessible, and in a place where you’re not tempted to spend it on non-emergencies”, and lists a dedicated bank or credit union account, a prepaid card, or cash, noting that cash can be stolen, lost, or destroyed (CFPB).
- FDIC: “Your deposits are automatically insured to at least $250,000 at each FDIC-insured bank.” This covers deposit accounts such as checking, savings and money market deposit accounts, not products like stocks, bonds, mutual funds or crypto assets (FDIC, read October 30, 2026).
- NCUA: “Each credit union member has at least $250,000 in total coverage for share accounts held at a federally insured credit union”, and coverage is automatic when you join (NCUA).
- Check that a bank is insured with FDIC BankFind and a credit union with NCUA Research a Credit Union.
The interest a fund can avoid, only for the math
This example is only for the math, not a typical emergency. It compares paying a $2,000 surprise bill over 24 months at the Federal Reserve’s August 2026 averages: 11.90% APR for 24-month personal loans and 22.36% for credit card plans (G.19). Paying it from savings adds no interest.
| Option | Monthly payment | Interest | Total paid |
|---|---|---|---|
| Personal loan at 11.90% | $94.05 | $257.20 | $2,257.20 |
| Credit card at 22.36% | $104.11 | $498.64 | $2,498.64 |
| Emergency fund | $0.00 | $0.00 | $2,000.00 |
$94.05 x 24 = $2,257.20, and $104.11 x 24 = $2,498.64. Your rate depends on your credit and the lender. Once you have used the fund, the CFPB says to work to build it up again (CFPB).
If the bill comes before the fund
See help with an emergency expense without a loan first. If you still borrow, see how to budget for a loan payment so the payment and a small savings transfer both fit.
Checklist
- Pick a first goal based on surprise bills you have had before.
- Set up a recurring transfer or split direct deposit.
- Keep the fund in an insured account you will not spend from by habit.
- Check that your bank or credit union is federally insured.
- Refill the fund after you use it.
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Sources
- CFPB: An essential guide to building an emergency fund (page last modified October 29, 2025)
- Federal Reserve: Economic Well-Being of U.S. Households in 2025, executive summary (May 2026)
- FDIC: Deposit insurance
- MyCreditUnion.gov (NCUA): Share insurance (last modified February 4, 2025)
- FDIC: BankFind Suite, Find Insured Banks
- NCUA: Research a Credit Union
- Federal Reserve: G.19 Consumer Credit (released October 7, 2026), terms of credit, August 2026: credit card plans and 24-month personal loans
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.