What is the Difference Between an Emergency Fund And Savings?

What is an Emergency Fund?

What is a Savings Fund?

What are the Differences Between Emergency Fund and Savings Fund?

The differences between a savings fund and an emergency fund are as follows:

Parameters

Emergency Fund

Savings Fund

Objective

To access money during an emergency.

Make payments as and when required.

End-Use Restriction

You should only use it when it is urgent.

You have the flexibility to use this money for everything.

Returns

You cannot earn returns unless you invest this money.

You can earn interest on the money you keep in an emergency fund.

Type of Savings

Goal-oriented savings to meet immediate fund needs.

You can use this money for a variety of purposes.

Amount to Be Kept

You should estimate the money according to your goal.

You can keep any amount that you need.

Forms

You can keep this money in cash or a separate savings account.

You can open a bank account to deposit your savings fund and reap its benefits.

Uses

You can use this fund during immediate fund needs.

You can pay for shopping, dining and other purposes.

Fund Transfers

It would be best not to transfer funds from your emergency fund.

You can anytime transfer funds from your savings fund.

Availability of Money

Available money when you are out of cash in the bank.

It offers money when you have a stable inflow of cash every month.

Nonetheless, there are several similarities as well between savings funds and emergency funds that you must be aware of.

What Are the Similarities Between Emergency Fund and Savings Fund?

FAQs About Emergency Fund and Savings Fund

How much money should you save in your emergency fund? up-arrow

You should save according to the goals of an emergency fund. However, ideally, you should save an amount equivalent to 3 to 6 months' living expenses. This will ensure you can live freely even if your monthly income source vanishes.

How much time does it take to build an emergency fund? up-arrow

Ideally, building an emergency fund should take about 6 to 18 months. Hence, accordingly, you should plan your monthly contribution to this fund. To ease the process, you can also frame a budget and adhere to it.

Where can you put your emergency fund money? up-arrow

There are two places where you can put your emergency fund money. The first is in a separate savings bank account that you will not access unless you need immediate funds. Apart from this, you can also keep the emergency fund money as cash in your home.

What are the advantages of putting money in a savings account? up-arrow

You can use the money to meet your daily expenses. Also, you can keep the money in this account over the long term to plan vacations and high-ticket purchases. In addition to this, you can also earn interest from your savings account, which can earn you extra money.

What are the disadvantages of putting money in a savings account? up-arrow

Banks often set a limitation on the frequency of withdrawal from your savings account. Furthermore, keeping a minimum amount in your bank becomes mandatory to avoid paying a penalty.