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Whether it’s urgent car repairs, last-minute travel for a family emergency or an unforeseen and hefty medical bill for yourself (or a pet!) - life is full of unexpected situations.

On the other end of the scale, we’ve seen the impacts of a global pandemic that damaged the health, social bonds, and economic security of millions around the world.

The risk of job losses, serious health issues and disruptions to our home life were all too real. They did then and continue to now in 2024 with the cost of living crisis and economic recession.

There’s no doubt that a sudden loss of income can cause significant stress. It’s in those situations when you need cash immediately, that’s when an emergency fund can save the day.

What is an emergency fund?

An emergency fund is an easily accessible source of money that acts as a safety net in case of any unexpected emergencies where you need cash. Its sole purpose is to help you manage any sudden expenses and minimise financial stress.

How much should I have in my emergency fund?

It’s hard to provide a single figure of how much we should have in our emergency fund. The amount will depend on your personal situation and comfort level.

A few factors to consider when working out how much cash you need include:

  1. Are you the sole income earner?

  2. Do you have family members that could provide financial assistance for emergencies?

  3. Do you have children?

  4. Do you have large, regular costs such as a mortgage?

Common emergency fund approaches:

  1. One to three months net income. To replace your income should you need unexpected time off work.

  2. Three months' worth of loan repayments or rent, plus bare minimum living expenses (such as groceries and other bills)

  3. A minimum of $5000 for a single, or $10,000 for a couple.

What should I use my emergency fund for?

In most cases, it’s unlikely you’ll need to touch your emergency fund for a long time - or at least we hope!

To give you an idea of when you might use it, we asked the Kernel team for examples of when their emergency fund came to the rescue.

  1. Waking up with a toothache resulted in a costly trip to the dentist and a $5,000 solution.

  2. Time off work for a small medical procedure that cost a cool $6,000 out of pocket.

  3. A blown-up car engine between Hamilton and Auckland (eek!).

  4. A very expensive trip to the vet to save the life of a cute kitten.

  5. An unexpected death in the family that required last-minute expensive international travel.

So, when should I start my emergency fund?

There’s no time like the present! As unsettling as it is to think about (and as our examples above illustrate), you can’t predict emergencies. Unexpected events don’t wait around for when you’re ready, so it’s not something you should put off.

If you haven’t started an emergency fund yet, we are challenging you to get onto it today!

If you have savings already, then you can move some of it to a separate savings account and build it up from there if necessary. If not, you can start by putting regular, small amounts of money aside every time you are paid.

An exception to prioritising this is making sure any high-interest debt is paid off first. This could include credit cards or personal loans. There is no point saving at ~5% interest if you are paying off ~20% interest debt elsewhere.

Where can I keep my emergency funds?

While earning money (through a competitive interest rate) on your emergency fund can be a bonus, being able to access the money when you need it can often be the most important factor.

However, depending on your personal preference and risk tolerance, you could consider keeping a portion of your emergency fund in different savings products. This way, you can earn greater interest off some of the money whilst having immediate access to the rest.

Below are a few common short-term saving options you could choose from:

Savings accounts

Savings account with a bank

Major banks such as Westpac, BNZ, ASB, and ANZ commonly provide savings accounts – these can range from on-call accounts to bonus saver accounts, to term deposits.

On-call accounts are those that give immediate access to the money, hence the name “on-call”. The money is available at any time albeit often at a reduced interest rate.

It’s important to be mindful of a couple of things with all savings accounts – the required withdrawal/notice period, any account or overdraft fees, withdrawal penalties and more.

Check out interest.co.nz to see an overview of the rates from different savings accounts in NZ.

Online savings accounts

These savings accounts are typically offered by online wealth platforms (such as Kernel). They’re often ultimately held as a deposit at one or more NZ registered banks with an investment grade credit rating; meaning, the bank has a credit rating of BBB or above.

While the money is commonly held by a bank, you may get extra features such as higher interest, no account or penalty fees, plus, the convenience of having your investments and savings in one place.

Handy if you want to keep your emergency funds away from your everyday spending, so you don’t end up dipping into it unnecessarily! Close by but not too close.

Interested in an online savings account option? Check out the Kernel Smart Saver account here.

Cash funds

A cash fund can be used as an alternative to term deposits or savings accounts. It can be suitable for those looking for a higher return than your average online savings account, whilst ensuring the money remains easy to withdraw when needed within a day or two.

Cash funds, such as the Kernel Cash Plus Fund, are typically made up of cash and cash equivalents, such as commercial paper, bonds near maturity, and more. Meaning, you can take comfort in knowing your savings are well-diversified.

As cash funds are ultimately managed funds, they do come with additional (low-level) risk. While cash funds are typically stable in value, they may have short periods of negative performance.

They also benefit from lower taxes, whereas the tax rate on a savings account is up to 39%, the maximum tax rate on cash funds is 28%.

Choosing where to put your emergency fund

If you would like to benefit from growing your money whilst continuing to access it easily, you could consider splitting the total amount between a savings account with a bank, as well as an online savings account or cash fund.

The purpose of this would be to ensure you are maximising your potential returns on a portion of the money, whilst not forgoing the ability to access some quickly, should you need it urgently.

An alternative would be to have access to an overdraft or credit card with a sufficient credit limit for those immediate requirements that can’t wait a day or two.

Below is an overview of the savings products mentioned above and the time it takes to withdraw money from your account or fund to your bank account.

Read more about the differences between cash funds, term deposits and savings accounts.

Some top tips to summarise:

So, there you have it! A simple guide to setting up your emergency fund that will make sure you’re ready for any unexpected events. Let’s recap:

  • Calculate your monthly minimum expenses and consider your circumstances when working out how much you need in your emergency fund.

  • Remember to look at fees as well as the interest rates.

  • You don’t need to have your emergency fund at the same bank as your day-to-day bank. In fact, if it is with a separate provider, you may be less tempted to touch it unless necessary.

  • Interest.co.nz is a great site to find the latest savings account rates.

  • Don’t forget to shop around, to ensure you find an option suitable for your situation!

  • While we all need access to cash quickly, many things can wait a day or two and that can unlock higher interest rates.

For more on emergency funds and other financial wellness tips, check out It’s No Secret’s podcast episode.

Dean Anderson

Dean Anderson

Founder & Chief Executive

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