What an emergency fund is for
An emergency fund is money you can reach within a day or two to handle a job loss, medical emergency, urgent home or car repair, or a family crisis — without breaking long-term investments, taking a high-interest loan or swiping a credit card. It is not for planned expenses like a holiday or a new phone.
How much you need
Emergency fund = (essential monthly expenses + EMIs) × months of cover
Count only what you must pay: rent, groceries, utilities, school fees, insurance premiums, transport and all loan EMIs. Leave out discretionary spending, which you would cut in an emergency.
| Your situation | Suggested cover |
|---|---|
| Stable salaried job, two earning members, good health cover | 3 months |
| Typical salaried household | 6 months |
| Single income or several dependants | 9 months |
| Self-employed, commission-based or contract income | 12 months |
Example: ₹40,000 of essentials and ₹10,000 of EMIs, six months of cover → ₹3,00,000. With ₹1 lakh already saved and ₹15,000 set aside each month, the fund is complete in about 14 months.
Where to keep it
The money must be safe and quick to access, even if that means a lower return:
- Savings account — for the first month or two of expenses. It earns only about 2.50% at SBI (savings interest calculator).
- Sweep-in / auto-sweep FD — SBI's Multi Option Deposit moves surplus savings into an FD automatically and breaks it in units when you need cash, so most of the fund earns FD rates.
- Short FDs split into smaller pieces — several ₹50,000 FDs instead of one large one, so you only break what you need. See the FD calculator.
- Liquid mutual funds — redemption usually reaches your bank the next working day.
Avoid keeping your emergency fund in equity funds or stocks: an emergency often coincides with a market fall.
Building it faster
- Automate it. Set up a monthly transfer or an RD on salary day.
- Use windfalls. Put bonuses, tax refunds and gifts straight into the fund.
- Insurance first. A good health insurance policy and term cover mean your emergency fund does not have to pay for hospitalisation or replace income for your family.
- Have a back-up line of credit. A loan against your FD can bridge a gap without breaking deposits.
Once the fund is in place, money you save each month can go towards long-term goals — try the retirement calculator.