Emergency fund: how much to keep aside and where
It is the foundation of any plan: without a cushion, a surprise turns into debt or forces you to sell investments at the worst moment. Here is how to size it and where to hold it.
What it is for, and what it is not
An emergency fund covers what you cannot foresee or postpone: losing a job, a major repair, a medical bill. It is not for holidays, a planned car replacement or an "investment opportunity". For expenses you know are coming there are other accounts, with a name and a date.
How many months of expenses
What counts is not your salary but how much you spend to live: rent or mortgage, utilities, groceries, transport, insurance, loan repayments. Not discretionary spending, which is suspended in an emergency. A starting rule, to be adapted:
| Situation | Months of essential expenses |
|---|---|
| Permanent employee, no children | 3 |
| Single-income family, mortgage, children | 6 |
| Self-employed, freelancer, seasonal work | 6-12 |
Example with essential expenses of €1,800 a month: three months is €5,400, six months €10,800, twelve months €21,600. Setting aside €300 a month, the six-month fund is complete in 36 months: three years. A small fund built now beats a large fund postponed; you can grow it with an automatic transfer, as in the conscious spending plan.
Where to hold it
Three requirements, in this order: available immediately, no risk of capital loss, separate from your everyday account (so you don't spend it by mistake). Yield comes after.
- Current account or flexible deposit account. The most convenient. Check there are no lock-ins or exit penalties.
- Savings passbook. Simple and risk-free, usually with low returns.
- T-bills or short-term government bonds. They can pay a little more, but they are sold on the market and not credited the same day: fine for the "beyond the first months" part of the fund.
Shares, equity ETFs or policies with penalties are not suitable: when you need the money, they may be worth less. The comparison between deposits and government bonds is in the guide on deposit accounts or short-term government bonds.
Guarantees and tax to check
- Deposit guarantee. The Italian interbank deposit protection fund repays up to €100,000 per depositor and per bank, adding up all accounts at the same bank. If you exceed that, spread across several banks.
- Stamp duty. On current accounts and passbooks held by individuals it is €34.20 a year if the average balance exceeds €5,000. A sizeable emergency fund will exceed it; for deposit accounts the rules may differ, so read the information sheet.
- Interest. Interest on accounts is taxed at 26%; on government bonds at 12.5%.
When to use it, and how to top it up
Before touching it ask: is it unforeseen, urgent and necessary? If yes, use it without guilt: that is its job. Then restart the automatic transfer until the amount is back to what you set.
Once the cushion is safe, the rest of your savings can aim further: the bond yield calculator helps compare options for liquidity.
Sources
- Fondo interbancario di tutela dei depositi (FITD), €100,000 limit per depositor
- Agenzia delle Entrate, circular 48/E of 21 December 2012, stamp duty on current accounts and passbooks: €34.20 above €5,000 average balance
- Money.it, taxation of investments, 26% and 12.5% rates
Try the tool: Net yield calculator for BTPs and bonds. Gross and net yield to maturity, with 12.5% or 26% tax, stamp duty and fees.
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Book a free callFor information and education only. This is not investment advice or a personal recommendation. Tax and pension rules change over time: always check current requirements with official sources (INPS, Agenzia delle Entrate).