If you’ve ever faced an unexpected car repair bill or had to make a sudden, costly visit to the dentist, you may have realized the importance of a rainy day fund. 

As the name suggests, a rainy day fund is a sum of money set aside to cover one-off expenses like a broken windshield or a sensitive tooth. The costs involved may not be exorbitant, but they still might be significant enough to disrupt your monthly budget. Enter the rainy day fund: an accessible source of money that will cover these types of unforeseen expenses so they don’t throw off your financial balance.

But how does a rainy day fund compare with an emergency fund? An emergency fund is for major expenses brought on by serious events like illnesses that require hospitalization or cause a sudden loss of income. A rainy day fund, on the other hand, is for less serious events that involve significantly lower costs. Ideally, a rainy day fund should be able to cover sudden expenses that fall outside your monthly budget.

Having a rainy day fund is the financial equivalent of keeping an umbrella handy at all times. With adequate cover, you’ll never be stuck struggling to pay bills. So, let’s wade into the details of a rainy day fund.

• Benefits of a rainy day fund

• What type of expenses should a rainy day fund cover? 

• How much money should my rainy day fund have?

• Where should I store my rainy day fund?

• Rainy day fund saving strategies

• Get started with your rainy day fund

Small financial shocks can add up and make a big dent in your long-term financial goals. A rainy day fund is an additional safety net that can help you cover these sudden expenses easily.  

Having a rainy day fund gives you a certain degree of flexibility in case you have to outlay money for something not in your typical budget. It helps you avoid resorting to costlier alternatives like borrowing money, such as through a personal loan; withdrawing early from a CD account or stock portfolio holding long-term savings; or using a credit card. With a separate rainy day fund, you can avoid dipping into investments or other savings like an emergency fund. 

Trouble comes calling when you least expect it. All you can do is be prepared. 

Sudden expenses are also similarly unexpected. A rainy day fund should be able to cover a variety of unforeseen expenses like the following:

• Replacing a broken kitchen appliance

• New tires for your car

• A visit to the doctor, dentist, or veterinarian

• Replacing your mobile phone if it gets lost or stolen

• Minor home repairs 

• A sudden trip 

These are just examples; many other kinds of situations can crop up. A rainy day fund feels most useful when events occur that you couldn’t have fathomed.

There are no strict guidelines about the amount of money you should put aside in a rainy day fund. While $500 to $2,500 is a ballpark figure, the actual figure should be determined by your lifestyle, financial circumstances, and your number of dependents.

You can come up with an optimal figure through a quick assessment of things that could potentially go wrong in your daily life and a rough calculation of how much it would cost to fix or address those issues. Consider, for instance, what it would cost to get a new refrigerator or water heater—household items that are hard to live without—if yours were to suddenly break down. This will ensure that your rainy day fund has enough to meet surprise expenses without throwing your budget out of gear.

Since the expenditures we are discussing will be unexpected, it’s smart to keep your rainy day funds easily accessible.

The safest bet is a high-yield savings account, which will ensure you maintain liquidity and easy access to your funds while getting a higher interest rate than you otherwise would with a checking account, for example. You can also look at money market deposit accounts (MMDAs) for your rainy-day funds, as these types of accounts also offer strong earnings potential and liquidity. Plus, by keeping your rainy day fund in a separate account from that of your daily spending money, you’ll be less likely to dip into it for discretionary purchases.

Look for an account that is insured by either the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). For example, all financial institutions on the online savings platform Raisin are insured by the FDIC or NCUA.

Ideally, keep your rainy day fund in an account that allows quick withdrawals without additional charges. Keeping your money in separate accounts can be helpful in certain circumstances.

Start your rainy day fund with a secure account that gives you the convenience and flexibility you need. Raisin offers unbeatable options to start your rainy day fund. 

All our savings products are federally insured, and our high-yield savings accounts offer some of the most competitive interest rates available nationally.