Glossary · Investing and personal finance
Emergency fund
An emergency fund is cash set aside for unexpected costs or lost income, usually enough to cover three to six months of essential expenses.
Also called: rainy-day fund, emergency savings, cash cushion
Share of after-tax income saved, Sep 2026. Average since 1959: 8.4%.
Unemployed people in the US, Oct 2026: about 2.7 months.
In plain words
The car breaks down, the dentist sends a bill, or the job disappears. An emergency fund is money kept aside for exactly those moments, so that a bad week does not turn into credit-card debt or into selling investments at the worst time.
The usual rule of thumb is three to six months of essential costs: rent or mortgage, food, utilities, transport, insurance and minimum debt payments. People with an unsteady income, or a family with a single earner, often aim higher.
It is usually kept somewhere safe and quick to reach, such as a savings account, a money market fund or Treasury bills, rather than in stocks that might be down 30% when the money is needed. In the US, half of all unemployed people have been looking for work for 11.9 weeks or more (Oct 2026). In Jun 2010 the median reached 25.2 weeks.
Example
Sizing the fund
- Essential monthly costs: rent $1,400 + food $500 + transport $250 + utilities and phone $200 + insurance $150 + minimum debt payments $100 = $2,600.
- Three months: 3 × $2,600 = $7,800.
- Six months: 6 × $2,600 = $15,600.
- Saving $300 a month, reaching $7,800 takes 26 months; a tax refund or a bonus speeds it up.
Only essentials count: in a real emergency, restaurants and subscriptions are the first things to go.
One level deeper
Why cash and not investments? Emergencies often arrive together with bad markets: layoffs rise in recessions, exactly when stocks are down. Selling then locks in the losses. An emergency fund is insurance, and insurance is not supposed to earn much.
Its cost is the return it gives up. Cash in Treasury bills has roughly kept pace with inflation over the long run: since 1934, −0.1% a year after inflation, while stocks returned much more. That gap is the price of being able to pay a $2,000 bill without selling anything.
Americans’ saving swings with the economy. The personal saving rate was 3.8% in Sep 2026, against an average of 8.4% since 1959. Its record, 31.8%, came in Apr 2020, when lockdowns stopped spending and relief payments arrived.
The US personal saving rate since 1959
The share of after-tax income that Americans did not spend, month by month. It fell from the 1970s to the mid-2000s, rose after the 2008 crisis and spiked during the pandemic.
The numbers behind the chart
| Date | Personal saving rate |
|---|---|
| Jan 1959 | 11.3% |
| Dec 1960 | 10.4% |
| Dec 1970 | 13.2% |
| Dec 1980 | 11.4% |
| Dec 1990 | 8.8% |
| Dec 2000 | 4.1% |
| Dec 2010 | 6.2% |
| Dec 2020 | 11.8% |
| Dec 2022 | 4.4% |
| Dec 2023 | 6.6% |
| Dec 2024 | 5.1% |
| Dec 2025 | 5.0% |
| Sep 2026 | 3.8% |
Why it matters
It keeps a surprise bill from turning into expensive debt: credit cards at US banks charged an average of 21.19% a year (Aug 2026).
It lets long-term investments stay invested through bad times.
It buys time and choices: the option to look for the right job instead of taking the first one.
A common mistake
Myth: With a credit card, I don’t need an emergency fund.
In fact: A card can pay the bill, but at 21.19% a year the emergency gets more expensive every month, and banks can cut credit limits exactly when times are bad.
Questions people ask
How much should be in an emergency fund?
The common guideline is three to six months of essential expenses. A household with a stable job and two incomes may be fine at the low end; a freelancer or a single earner often keeps more.
Where do people keep an emergency fund?
Somewhere safe and quick to reach: a high-yield savings account, a money market fund or short-term Treasury bills. Not in stocks, which can be down sharply at the moment the money is needed.
Debt or emergency fund first?
A common approach is a small starter fund first (say $1,000), then paying off high-interest debt, then building the full three to six months. Without any cushion, the next surprise goes straight back on the card.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US recessions (NBER business cycle dates): National Bureau of Economic Research (NBER), Business Cycle Dating Committee: US Business Cycle Expansions and Contractions.
- Credit card interest rate at commercial banks, all accounts: Board of Governors of the Federal Reserve System, G.19 Consumer Credit, series TERMCBCCALLNS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Personal saving rate: U.S. Bureau of Economic Analysis, National Income and Product Accounts, series PSAVERT; retrieved from FRED, Federal Reserve Bank of St. Louis.
- 3-month Treasury bill, secondary market rate: Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates, series TB3MS; retrieved from FRED, Federal Reserve Bank of St. Louis.
- Median duration of unemployment: U.S. Bureau of Labor Statistics, Current Population Survey (household survey), series UEMPMED; retrieved from FRED, Federal Reserve Bank of St. Louis.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.