Rainy Day Fund: What It Is and Why You Need One

Having dedicated rainy day savings can help you weather irregular expenses and maintain financial stability.

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Stockpiling savings for stormy days — literal or figurative — can help you cover financial difficulties. A 2021 Federal Reserve Board report found that 32% of adults would not be able to completely cover a $400 emergency expense with cash. For many, a few hundred dollars is enough to tip the scale into debt. So a rainy day fund is crucial for when an expense that isn’t in your monthly budget strikes.

What is a rainy day fund?

A rainy day fund is savings that’s generally for expected, occasional expenses — events and things that you don’t necessarily account for in your monthly budget but that are expected to happen over time. This list can include occasional expenses such as minor car repairs, routine medical expenses and home maintenance. (See the table below for more examples.)

Where should I keep rainy day funds?

High-yield savings accounts are a good place to stash and grow your rainy day savings. Consider using more than one account, or an account with subaccounts, to keep your funds organized.

» Ready to save? Our picks for the best high-yield online savings accounts

Rainy day fund vs. emergency fund: What’s the difference?

Rainy day funds are separate and different from emergency funds: Rainy day funds are for expected expenses whereas emergency savings are for costly, unanticipated emergencies.

Emergency funds, which ideally provide a three- to six-month cushion of living expenses, are reserved for events that can seriously upend your financial life and are harder to anticipate.

Here’s a reference table so you can quickly see what kinds of expenses you’d use a rainy day fund for versus an emergency fund.

Rainy day fund

Emergency fund

Purpose of expense

Expected expenses such as:

  • Children’s braces.

  • Routine medical expenses.

  • Routine veterinary bills.

  • Small car repairs or maintenance.

  • Regular home maintenance.

  • Electronics replacements.

Unexpected, costly expenses such as:

  • Job loss.

  • Unforeseen medical expenses.

  • Divorce costs.

  • Major car repairs.

  • Major home repairs.

  • Unanticipated, essential travel.

Recommended fund amount

From $500 to $5,000, depending on what situations you expect to come up.

Three to six months’ worth of living expenses. Learn how much you should have in savings.

» Want to prepare for inevitable home expenses? Learn how to budget realistically for home repairs

Rainy day savings strategies

Creating a rainy day savings strategy starts with getting a handle on anticipated future expenses. For most people, monthly expenses such as house payments, utilities, insurance and groceries stay steady. Other costs are less frequent but not technically emergencies. Those are the costs that your rainy day fund is for.

» Don’t know where to start with a budget? Check out our guide to budgeting money

You can start building up your rainy day savings with a few key strategies:

  1. Make a list of the expenses you’re likely to have in the coming years. In addition to car maintenance and house repairs, the list could include kids’ braces or veterinary bills, for example. This will help you set a goal to save toward.

  2. Set up multiple savings accounts. Find a bank that offers multiple savings accounts with no monthly fees. Dedicate each savings account to a specific category of rainy day expenses, or use a savings account that offers subaccounts. Ideally, use a high-yield savings account or a money market account — both allow ready access to your cash if you need it, and a money market account may include the ability to write checks.

  3. Make rainy day savings a habit, and try automating it. Get in the habit of socking away part of your monthly income in each of your savings funds. You can start small with just a few dollars a month. Consider setting up direct deposits to automatically move some of your paycheck into the rainy day accounts.

  4. Boost your savings habit. To get some savings inspiration, consider doing the 52-week money challenge or tackle some of the 22 proven ways to save.

Having a rainy day fund can help strengthen and maintain financial health

Having a rainy day fund can help you stay financially healthy. When new, midsize expenses strike, you’re less likely to turn to costly ways of borrowing money, such as credit cards or home equity lines of credit.

Saving specifically for rainy day expenses and separating those savings from an emergency fund has an additional benefit: You could be far less likely to tap those reserves for purposes other than what they’re meant for. Though you’ll never be totally prepared for everything life throws at you, knowing you’ll be able to ride through some of the financial bumps in the road should help you rest easier.

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