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How to quickly build an emergency fund

A high-yield savings account can help you grow your emergency fund.  Wong Sze Fei/EyeEm

Amidst the current economic challenges and uncertainty, such as stubborn inflation, stock market volatility, and some high-profile companies having layoffs, you might be looking to shore up your finances. For many people, that includes building up an emergency savings fund.

While it can take time to reach your emergency savings fund goal—often around 3-6 months' worth of living expenses—that doesn't mean you have to sit around and hope everything works out either. There are some active steps you can take to accelerate your savings. A high-yield savings account is one alternative worth pursuing. You can explore interest rates and local offers online now.

How to quickly build an emergency fund

Here are two reliable ways to start building an emergency fund.

Open a high-yield savings account

The money you save in an emergency account might not earn much of a return, but that can be by design.

"Your emergency savings isn't an investment account," says Nicole Burdick, an LPL-affiliated financial advisor and founder of Money Maven Financial. "It's more like an insurance policy—a safety net in case of emergency. It should be easy to access, fully liquid, and immune to stock market volatility."

But one way to build a liquid emergency fund while still earning relatively high interest is to open a high-yield savings account.

A high yield can be subjective, but in general, these accounts have higher interest rates than the average savings account. Yet high-yield savings accounts still generally allow for the same flexibility, with perhaps slight differences like being online-only vs. having physical branches, though it depends on the financial institution.

While you'll still likely want to compare factors like minimum deposits, fees, and the amount of time it would take to withdraw money from a high-yield savings account vs. a more traditional savings account, a high-yield account could potentially be a good place to build up your savings faster.

Explore your high-yield savings account options online now to see how much more you could be earning.

Open a certificate of deposit (CD) account

Another way to earn more interest to build an emergency savings fund faster is to open a CD.

A traditional bank or credit union CD lets you deposit money for a set period of time to earn a fixed interest rate.

Compared to high-yield savings accounts, CDs often have higher interest rates, especially for longer-duration CDs (although sometimes long-term CDs have lower rates than short-term ones based on interest rate projections). Plus, since the rates are fixed, you know how much you can earn when you open a CD, whereas a high-yield savings rate can change over time.

But because withdrawing money from a CD before maturity often carries a penalty, they might not be your preferred place to store your emergency savings, as you don't know when the emergency will occur. However, you might use strategies like building a CD ladder, where you have CDs of varying durations. By staggering maturity dates, you can have money coming in at different times.

For example, if every month you buy a 12-month CD, then a year from that point, you'd have a set amount maturing each month. That could help in situations like a job loss, where CD income could help offset some of your lost employment income.

That said, this can be a more complex approach, and you might also want to keep some emergency savings in a high-yield savings account for more liquidity.

Check your local CD offers online now to see if it's the right option for you.

Other considerations

In addition to earning more money via interest, another way to get your emergency fund up to par is to address the issues that could trigger a need for emergency savings in the first place.

"Instead of just saving and hoping for the best, address the risks," says Burdick.

For example, she advises to "diversify your income so you don't have all your eggs in one basket," as well as "build your network now in case you need a job later."

Taking these steps can both reduce the risk of an emergency while also potentially increasing your income so you can save more.

If you have a side hustle to go along with your main employment, you can earn extra money to set aside, and if you lose your job, you'll have both those savings and an alternative income stream to help keep you afloat. Or, networking might lead to a better-paying job before you end up in a situation like a job loss.

Burdick also suggests addressing the expense side of the equation."Avoid unnecessary debt, and keep your mortgage manageable, even if it means taking on an extra roommate," she says.

That said, you don't have to be extremely frugal if you don't want to; but being mindful of your overhead can make building an emergency fund more manageable.

Make it a competition

Saving more money and earning more money can both help you quickly build an emergency fund, but that's often easier said than done.

"Financial experts tend to focus on the logistics of goals like building an emergency savings fund, but what about the motivation?" says Burdick. "Forget cutting out lattes and dining in every night. If you really want to fill that emergency fund fast, turn the goal into a competition between you and your partner, or you and a friend."

She suggests tactics like selling items you no longer use, taking on side gigs, and cutting subscription services. And you can add a prize to the competition, like the winner getting a pass on doing dishes for the week.

You're probably not going to be able to set up a fully funded emergency savings account overnight, but you can set yourself up for success by following these types of steps. You never know when an emergency will occur, so the sooner you can start, the better. That said, you'll likely need some patience and perseverance to reach your emergency savings goals. 

Consider high-yield savings accounts and/or CDs to determine if they can help quickly build an emergency fund. 

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