How much should an emergency fund be?

What it is for

An emergency fund stops an unexpected expense turning into debt at 24% APR. That framing tells you what qualifies: the boiler, the car, the gap between one job and the next. A holiday you knew was coming is a goal and belongs in a different pot.

Sizing it

Start from essential outgoings, not total spending. In a genuine emergency, discretionary spending stops immediately. What does not stop:

• Rent or mortgage
• Council tax
• Energy, water, broadband
• Food
• Travel to work
• Insurance
• Minimum debt payments
• Childcare

For most households that is well below total monthly spending, which makes the target smaller than it first appears.

Then adjust for how secure the income is:

Check what sick pay and redundancy terms your employer actually offers before settling on a number — statutory minimums are lower than most people assume, and the gap is exactly what the fund covers.

The savings goal calculator converts whatever figure you land on into a monthly amount and a date.

Build it in stages

A six-month target is discouraging from a standing start, and discouraging targets get abandoned.

1. £1,000, or one month of essentials. Covers a large share of what otherwise goes on a credit card.
2. One full month.
3. Three months.
4. Your full target.

Each stage is a real reduction in risk. Stopping at stage two for a while is a reasonable decision, not a failure.

Where to keep it

Easy access. A fixed-rate bond is not an emergency fund. Neither is a notice account if the notice period is longer than your problem. See types of savings account.

Separate from your current account. A different provider, without a linked debit card, adds enough friction to prevent casual spending without preventing genuine access.

FSCS protected. Confirm the provider is authorised and check the banking licence rather than the brand if you are holding a large amount.

Earning something. The yield is the least important of these, but there is no reason to accept nothing. Compare on AER.

Debt first, or fund first?

Both, in sequence. Holding £8,000 in savings at 4.5% while carrying £4,000 on a card at 24% costs you the difference every month, so on the arithmetic the debt should go first.

But clearing every penny with no buffer means the next unexpected expense goes straight back on the card. The practical order:

1. Build a starter fund — around £1,000, or one month of essentials.
2. Attack the expensive debt. The debt payoff calculator shows which order costs least.
3. Then build the fund to its full target.

If you are already in difficulty

Free debt advice is available from MoneyHelper, Citizens Advice, StepChange and National Debtline. None of them charges. Building savings while missing payments is not the right order — get advice first.