Emergency funds explained

Whether it’s for unforeseen emergencies or unplanned expenses, an emergency fund can help you manage unexpected challenges and circumstances. In this guide, we’ll look at what an emergency fund is, the pros and cons, and where you could keep it.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

An emergency fund, also known as a rainy day fund or contingency fund, is a dedicated amount of money set aside to cover unexpected financial expenses. Often kept in a savings account, this fund acts as a safety net for unforeseen expenses such as household repairs, job loss, or medical bills.

Having an emergency fund can help you stay financially prepared and avoid borrowing or using other long-term savings when unexpected costs arise.

If you’re employed and managing your monthly bills, having an emergency fund can make it easier to handle sudden changes in your finances. Imagine a situation where you suddenly lose your job or require urgent medical care. Regardless of the circumstances, you’d still have financial responsibilities to meet.

An emergency fund is a savings pot designed specifically for contingencies. Having some cash set aside for life’s uncertainties can give you peace of mind that you’ll manage financially without taking on  unnecessary debt.

These are some examples of situations where you might need to rely on a rainy day fund:

• Job loss

• Urgent hospital or medical bills

• Vet expenses such as pet surgeries

• Home repairs

• Broken or lost electronics

• Car damage or urgent repairs

By saving for a rainy day, you can make sure you’re financially secure when times are tough. Instead of having to borrow money or take out a loan, you can dip into your emergency fund and mitigate a potential financial burden.

Financial experts often recommend having at least three to six months’ worth of living expenses or three months’ salary (after tax) saved as your emergency fund in Ireland*. The right amount will vary based on individual factors, such as:

• Household expenses – rent or mortgage, utility bills, and groceries

• Family size and contributing members – whether you’re single or have dependent children

• Job stability – how stable your income is

• Cost of living – higher in Dublin or Cork than in smaller towns

If your total monthly household expenses, including rent or mortgage, total €1,500, and you’re following the three-month guidance, you should try to save at least €4,500 in your emergency fund.

For added security against financial burdens, saving up to six months’ worth of costs would give you a stronger safety net. If your monthly expenses are €1,500, your contingency fund would have €9,000 for emergencies. This may seem like too big a number at first glance, but it is the upper limit on your emergency fund. Setting aside any sum of money, however big or small, will help in a financial crisis.

A simple way to start is to save what you can manage right now and increase the amount over time.

Take time to review your expenses and cut back where possible. A practical approach is to calculate your average expenses over the past few months to determine a realistic savings goal. You can enter all your essential costs in a budget planner to see how much money you can save per month.

Once you’ve planned your monthly contribution, you can set the money aside regularly. Having a target date and milestones can be motivating.

Consider opening a separate savings account just for your emergency fund. This can help reduce any temptation to spend the money and may even earn you some interest. Check if the account allows instant access to your cash in emergencies.

To simplify the process, you may set up a standing order from your main account to your emergency fund on payday. With Raisin, for example, you can use a savings plan to automate transfers into a demand deposit account each month, helping you build your emergency fund consistently.

For more ways to grow your rainy day fund, discover:

It can be hard to resist temptation, especially when you know you have extra money within reach. Avoid dipping into the fund for other expenses like holidays or shopping, to protect your future. Some people use their budget as a way to regularly review spending and make sure they’re on track.

If you’ve had to use part of your emergency fund, top it back up when possible. Emergencies can happen more than once, so keeping your fund topped up ensures you are prepared for sudden costs in the future. You can do this by resuming regular contributions or adding occasional lump sums when possible. Replenishing your emergency fund and keeping it at the intended level is not only beneficial for your peace of mind, it is also a key element of good financial planning.

Reassess your emergency fund periodically as your life changes. For example, if your household expenses increase or your income changes, you may need a larger fund. You can adjust your contributions accordingly and continue to monitor your fund so it continues to be a reliable safety net for years to come.

Once you’ve defined your savings strategy for your emergency fund, the next step is choosing where to keep your money. Keeping large amounts of cash at home can pose a security risk. One option to consider is a flexible savings account. 

When choosing where to save, you might want look for these features:

Instant access: An emergency fund should ideally be readily accessible in case of an urgent financial need. While earning interest is beneficial, it’s not the primary goal of an emergency fund.

• DGS protection: Ensure your emergency fund is protected by the Deposit Guarantee Scheme of the bank’s country to safeguard your savings.

• Separate account: Consider having your emergency fund in an account separate from your daily banking to avoid spending it on everyday needs.

Considering all these factors, a demand deposit account can be a sensible choice for an emergency fund. It provides a secure place to keep your money while ensuring you can quickly access it when needed in emergencies.

Some people may find it inconvenient to have an emergency fund as it keeps a sum of money tied up. But, at the same time, it also means that you’re well-prepared in case of financial instability.

With Raisin, you can open a demand deposit account for free. Your savings are protected up to €100,000 per depositor, per bank under the statutory Deposit Guarantee Scheme (DGS) of the partner bank’s EU country

You can easily compare savings offers, track your balance, and access your money whenever needed.

*https://www.rte.ie/lifestyle/living/2025/0701/1521050-financial-expert-tips-on-budgeting-and-5-ways-to-save/