4 ways savings accounts can help you build your emergency fund

Picture it: You’re settling in on the sofa for your favorite Sunday night show and, just as the opening credits start rolling, something drips on your shoulder.

Can’t be water, you’re inside. Plus, you’re… directly under the upstairs shower. And, someone’s using it. A quick glance upward reveals your latest headache: a brown spot that screams plumbing issues. How much is that going to cost?

Expect unexpected expenses

Costly repairs and emergencies happen out of the blue, and often at the worst times. If you plan for unexpected expenses, however, you can keep these surprises from derailing your financial plans.

Keeping a rainy day fund is one way to ensure you have the money you need in a pinch, without having to reach for a credit card or dip into savings you’ve earmarked for other financial goals. In fact, automating your savings by setting up a recurring transfer to an emergency savings account may be one of the smartest financial moves you can make when you consider how frequently unexpected expenses crop up.

Call it a sunny day fund—online savings with no monthly fees

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“When people actually review what they spend over a year, they discover that somewhere between 20 percent to 40 percent are expenses that don’t occur on a routine basis,” says Carol Craigie, CFP^®. These unexpected expenses could include everything from car repairs to doctor bills. “Then there are the really unexpected curveballs that life throws at us,” she adds, such as major home repairs, prolonged illness and job loss.

That said, unexpected expenses aren’t always negative, says Kathryn Hauer, CFP^® and financial literacy author.

“It might seem as if financial planners nag too much about the importance of an emergency fund, but another way to look at those savings [is to view them as] funds for a ‘happy emergency,'” she says. “Happy” could be anything from your child being chosen for an elite sports camp to you hopping on a plane to accept an award from your industry’s top trade association.

While many people have a traditional savings account, that money is often used to manage bills and everyday expenses. A separate savings account at an online bank can be a great way to maintain a rainy day fund and plan for unexpected expenses. Here’s why:

1. They’re low on fees and lax on minimums

It can be easy to overlook the many fees that banks charge their customers, and those fees can add up. For example, according to a 2023 Bankrate study, the average overdraft fee was $26.61 and the average total ATM fee was $4.73. Though these types of fees often apply to checking accounts, savings accounts are a source of revenue for banks as well; at big brick-and-mortar banks, savings accounts generally come with monthly maintenance fees and/or minimum balance requirements.

Not so for most online savings accounts, which often come without minimum balance requirements or maintenance fees. No minimum means you can start small and save little by little, building up your rainy day fund to help with unexpected expenses over time. And without a monthly maintenance fee, every drop of your hard-earned savings will go toward your rainy day fund and earn interest.

2. They may offer higher interest rates than brick-and-mortars

Some online banks have lower overhead than some of their counterparts at traditional brick-and-mortar banks. Because of this, they are often able to pass along the savings to customers in the form of incentives such as higher interest rates and annual percentage yields (APYs).

For example, with a Discover^® Online Savings Account, you can grow your money with a savings account interest rate over 5x the National Savings Average.¹

Higher interest rates (and APYs) can help with unexpected expenses because your savings earn more money between emergencies.

3. They’re optimized for on-the-go banking

Online banking is easy and mobile. Most online savings accounts can be set up and funded electronically at no cost, after which point they are accessible 24/7. Additionally, most allow you to easily deposit checks via your phone, meaning money that should be available for use in the event of an emergency won’t sit around un-cashed until you have a chance to swing by the bank. We all know how busy life can get.

Another convenient feature of mobile banking is the ability to check account balances on the go so that you can monitor your emergency fund at any time. That accessibility can take the stress out of emergencies—it’s easier to plan for unexpected expenses when you can quickly check in on your emergency fund to track your savings progress and determine if you have the funds to cover what’s come up unexpectedly.

4. They’ve got your back with customer service

Around-the-clock customer service is available from most online banks. That said, it’s worth doing your research ahead of time to get a full picture of the bank’s customer service offering. Make sure you can reach someone by phone, an app or even live chat when you have questions or need extra assistance. The goal is to ensure that you never feel like your money is out of reach, especially when you need it to help with unexpected expenses.

Plan for unexpected expenses

Everyone’s income and expenses are different, so determining how much to actually put into your rainy day fund will vary. Most experts recommend saving at least three to six months’ worth of living expenses to be used in the event of an emergency. If you don’t have the savings for an emergency fund available offhand, take a good look at your budget to see how much of your income can be diverted to your emergency account in a recurring monthly transfer.

And, if you do need help with unexpected expenses and end up tapping into your rainy day fund, always be sure to restock that account. Your next unexpected expense could be sooner than you’d think.

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.

¹ The Annual Percentage Yield (APY) for the Online Savings Account as of XX/XX/XXXX is more than five times the national average APY for interest bearing savings accounts with a balance of $500 as reported by Curinos as of XX/XX/XXXX. National average is based on information regarding the top 50 banks (by deposit size) and may not include information from variations in regional pricing at such banks or information from products that may not be widely available to their customers. Rates were obtained from Curinos, who relies on the data from the banks it tracks and such information cannot be guaranteed. APYs are subject to change at any time.