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What Is a Rainy Day Fund? How Much You Should Save

Choncé Maddox • June 21, 2024

A woman dips into her rainy day fund to have a plumber fix her leaky sink.

Unexpected expenses can pop up at any time. Having a rainy day fund can help weather the financial storm in case of an emergency. If you’ve ever faced minor but necessary car repairs, had to fix something in your home sooner than later, or needed to take a few unplanned sick days from work, a rainy day fund can help you tackle the problem with minimal financial stress.

Find out more about how a rainy day fund works, where to save for a rainy day, how much to set aside, and important tips to grow your fund.

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What is a rainy day fund?

A rainy day fund acts like a financial umbrella, shielding you from unforeseen expenses. By having this fund, you create a buffer from the immediate stress of unplanned costs, whether a sudden car repair or a medical bill that ends up being more than anticipated.

A rainy day fund is specifically designed to cover smaller, unexpected expenses that aren’t necessarily catastrophic but can disrupt your budget. Having this fund can help you handle life’s little surprises without dipping into your long-term savings or racking up debt with credit cards.

What should your rainy day fund pay for?

Understanding what a rainy day fund should cover can help you plan better and avoid financial stress. Here are some typical expenses where this fund can come in handy.

  • Car servicing: Regular check-ups can prevent costly car repairs later. For example, if you go in for an oil change but are told your brakes need to be fixed as well. You could tap into your rainy day fund to cover this expense that you didn’t anticipate but need to cover so you can drive safely on the road.
  • Educational expenses: Unexpected fees or school-related costs are common whether you’re in school, have a child in college, or have kids in grade school. Some of these expenses may not technically be an emergency, but certain supplies and technology may be important to have sooner than later.
  • Relocation expenses:  Sometimes, a move is necessary, even if unplanned. If your job doesn’t offer relocation funds or the money provided falls short, a rainy day fund can help fill in the gap.
  • Medical bills or co-pays: Let’s say you visit the doctor and are told you have a co-pay that you weren’t prepared to cover. Or, maybe you suddenly receive a medical bill in the mail, and the provider urges you to pay it quickly. You can use your rainy day fund to cover the expense or set up a payment plan that works for your budget.
  • Veterinarian appointments: Health doesn’t always wait for your finances to catch up, and it’s the same with appointments for your pets. Having the cash to cover veterinarian appointments can help you focus on treating and caring for your four-legged loved ones.
  • Appliance and minor home repairs: When the fridge or washing machine suddenly stops working, you can use money from a rainy day fund to pay for maintenance servicing or smaller-scale home repairs like fixing drywall.

Rainy day fund vs. emergency fund: Understanding the difference

A rainy day fund may sound like another name for an emergency fund. While both funds serve as financial safety nets, their uses differ. A rainy day fund is a net set aside to cover small, unexpected expenses that can arise from day-to-day life. An emergency fund is meant for more significant financial crises.¹

However, both options can help you cover unforeseen costs without derailing your budget. You may use a rainy day fund to tow your car to an auto repair shop after getting a flat tire. However, an emergency fund can be used if you need to cover several months of expenses due to a medical crisis or if you got laid off from work.

What’s the ideal amount to keep in a rainy day fund?

The size of your rainy day fund will depend on your lifestyle, monthly expenses, and financial stability. A good rule of thumb is to save between $500 and $5,000.²

This range ensures you can cover most minor emergencies without affecting your regular budget or savings goals. You can always adjust your savings amount over time based on your needs. Track when and how you use your rainy day fund over the next year to determine the ideal amount you’re comfortable saving.

Best places to store your rainy day fund

Your rainy day fund should be easily accessible but not too easy to tap for non-essentials. You probably don’t want to keep the money in your primary checking account where it can be easily spent on regular expenses. Instead, here are some ideal places to keep it:

  • High-yield savings account: A high-yield savings account can provide some interest to boost your balance while also keeping your funds easily accessible.
  • Money market account: Money market accounts often offer higher interest rates than regular savings accounts and still allow easy access to your money. The only thing to watch out for is that some money market accounts limit the transactions you make by check, debit card, or electronic transfer.³
  • Short-term CDs: A six-month Certificate of Deposit (CD) is another option if you don’t need immediate access but are also looking for a higher return.⁴ CD interest rates can vary, and many have an early withdrawal penalty if you need to take funds out before the CD’s maturity date. However, there are some no-penalty CD accounts if you need a more liquid option.⁵

Tips to grow your rainy day fund

Building your rainy day fund can be straightforward and even automatic. These tips will help you start growing your savings.

1. Set a goal. Choose an amount you want to reach for your rainy day fund so you know what you’re aiming toward. You can also set a desired date that you’d like to be fully funded and meet this savings goal.

2. Make it a priority. Treat your rainy day fund as a necessary expense in your budget to set aside money for it regularly. Review your current budget to decide how much you can save each month or paycheck. Budgeting for savings helps you plan to make your goal a reality.

3. Automate your savings. Consider setting up automatic transfers from your checking account to your rainy day fund to make sure you contribute consistently. Automating your savings transfers takes the pressure off when it comes to remembering to save and tracking your progress when life gets busy.

4. Open a new savings account. If you haven’t already, open a new account to keep the money in your rainy day fund separate from your personal finances. This will help you stay organized and avoid accidentally spending the money on other expenses.

5. Cut back on unnecessary expenses. Review your spending habits and see where you can cut back to save more money for your rainy day fund. You may want to temporarily pause some subscriptions, switch to generic brands to lower your grocery bill, or shop around to compare prices at different retailers before making a purchase.

6. Use windfalls wisely. If you receive any unexpected or extra income, consider putting some of it into your rainy day fund. This could include tax refunds, bonuses, or monetary gifts from friends or family.

Save for a rainy day

After tapping into your rainy day fund, you can always start saving again to rebuild the account, but this financial buffer can shield you from the burden of repaying credit card debt or a loan instead.

Doing a 30-day savings challenge can jumpstart your rainy day fund if you want motivation to get started and increase your savings.

Grow your savings

  • No monthly fees
  • Automatic Savings features
  • 2.00% Annual Percentage Yield (APY)~
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¹ Information from Newsweek’s “What is a Rainy Day Fund, and Why Do You Need One?” as of June 7, 2024: https://www.newsweek.com/vault/banking/savings/what-is-a-rainy-day-fund/

² Information from John Hancock’s “How American Spends For a Rainy Day” as of June 7, 2024: https://www.johnhancock.com/ideas-insights/how-america-spends-rainy-day-fund.html

³ Information from the CFPB’s “What is a Money Market Account?” as of June 7, 2024: https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-market-account-en-1007/

⁴ Information from the CFPB’s “What is a Certificate of Deposit?” as of June 7, 2024: https://www.consumerfinance.gov/ask-cfpb/what-is-a-certificate-of-deposit-cd-en-917/

⁵ Information from Investopedia’s “No-Penalty Certificate of Deposit: What It Is, How It Works” as of June 7, 2024: https://www.investopedia.com/terms/l/liquid-certificate-of-deposit.asp

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