How big should your emergency fund be?
An emergency fund covers job loss, medical bills your insurance is slow to reimburse, and the surprise $2,000 car repair you can’t put on a credit card. Standard rule: 3 to 6 months of essential expenses (rent or mortgage, groceries, insurance, utilities, minimum debt payments), not total lifestyle. Park it in a high-yield savings account (HYSA) where it’s liquid and FDIC-insured to $250K. As of 2024, top HYSAs like Ally, Marcus by Goldman Sachs, Discover, and Capital One 360 pay roughly 4% to 5% APY, versus around 0.5% at the big traditional banks.
If your essential expenses are $4,000 a month, target $12,000 to $24,000. Park $20,000 in a Marcus HYSA at 4.5% APY, that’s about $900 a year of interest, fully liquid, transferable to your checking account in 1 to 3 business days. The same balance in a Chase savings account at 0.01% earns $2. Same money, same risk, ~$900 a year of difference for filling out one online form.
Putting your emergency fund in an S&P 500 index fund because cash ‘is losing to inflation’. The fund is down 25% the same month you’re laid off, that’s the entire point of the emergency fund being immune to market timing.
A 60-second lesson on this, with a worked drill, lives inside the Finlo app. Free, forever, on the basics.