The Case for Multiple Emergency Funds

This post is sponsored by Alterna Bank, but all opinions, stories, and emergency fund anecdotes are my own.

Multiple emergency funds? But I’m having trouble even saving up one emergency fund.”

If that’s what you’re thinking when you hear “multiple emergency funds,” you’re not alone—because I would have said the exact same thing when my only goal was keeping my one, solo emergency fund above the $1,000 mark.

However, at that point, one emergency fund also made perfect sense, because I was only really preparing for one type of emergency: job loss. I didn’t have anything else in my life that would have realistically fallen to me to cover and would have counted as an emergency.

I didn’t have a dog who might need vet care or a car that might definitely will need repairs, or a house that’s all “I’m a house and I cost money all the time.”

If your only goal is to cover a job loss with your emergency fund, and you truly don’t think you’d use it for anything else, one account is plenty. But let me propose a simple, effective technique for when you do have multiple different types of emergencies you might need to tackle:

Set up multiple emergency funds.

Here’s why, and exactly how it’s helped me manage my different commitments—and also manage the process of saving up for them.

Set different goals

How much you need to cover job loss is one amount, how much you need to cover a vet bill or car repair is another. If you have multiple emergency funds, you can tailor each one to your ideal savings goal, and on top of that, you’ll know when you’ve hit that goal. Once you do, you can switch your automatic contributions to your next goal, to give your savings a boost where they need it most.

Set more achievable goals

I saved up and fully funded my dog’s emergency fund literally years before I fully funded my personal “in case of job loss” emergency fund. Partially because I felt like a dog emergency could happen anytime, and partially because the goal was just way lower. It felt great to knock that off my list and see at least one fully-funded emergency goal, even if I was nowhere near covering a job loss for a few months.

Prioritize your most pressing savings

If you have multiple emergency funds, you can more accurately prioritize how you’re saving money between them. If your car is 13 years old, but you bought a new-build house, one of those things is much more likely to need repairs in the next year or two.

Stay accountable

True emergency fund confession: I have, more than once, pulled a few hundred dollars out of my job-loss emergency fund to cover a non-emergency. But have I EVER touched my dog’s emergency fund for non-dog expenses? No way, not even once.

Having clear names and purposes for your accounts can help you stay accountable to your goals, especially when they really matter to you—like being a responsible pet parent does to me. Alterna Bank makes it easy to add a nickname to each of your accounts, so you can always quickly see which fund you’re tapping into for that mini-vacation.

See gaps in your plan

You might have a fully-funded dog emergency fund, like me, but forget that oh right, your car might have an emergency too. Or maybe you just moved into a house, but you haven’t started saving for inevitable house emergencies, like a windstorm that decides to play fast and loose with your roof shingles.

When you keep your emergency funds separated, it’s easier to see those kinds of gaps in your plan, instead of thinking your big pile o’ emergency savings in one place will cover you if everything goes wrong at once.

How to set up your emergency funds

As an OG multiple emergency fund user, here’s exactly what I’d recommend if you’re convinced and want to set up a few different accounts to stash your emergency cash.

  • Use a separate bank. In an ideal world, when your emergency accounts are fully funded—even if it takes you years, like it did me—they’re going to be a big pile o’ cash, even separated out across multiple accounts. Keeping those hefty totals somewhere you don’t see them on a regular basis, like a digital bank you don’t access every day, is a great way to stay the course with your goals. When you’re looking at new options, make sure to look for a bank that’s a Canada Deposit Insurance Corporation member like Alterna Bank, so your money is covered.
  • Use a high-interest account. If you’ve got money that you have to keep in cash because you might need it at any time, the best way to make the most of it is to keep it in a high-interest savings account—and no, 0.1% does not count as high-interest. Instead, look for accounts like Alterna Bank’s High Interest eSavings accounts, which pays 2.35%* interest. That’s high interest.
  • Use free accounts. The most important thing when you’re using multiple accounts to keep you on track with your emergency goals is this: You shouldn’t have to pay for each one. There are plenty of free account options available with Alterna Bank, even if you want something like a high-interest TFSA to stash your emergency cash—because every $5 you don’t pay in account fees every month is $5 closer to your savings goal.

And whether I’ve convinced you that multiple accounts are the way to go, or you’re sticking with a single emergency fund, all of the above still applies. If you’re doing the hard work of saving money for emergencies, you should always avoid paying account fees to stash that money, and you should be earning solid interest on your savings, too.

*Interest is calculated daily on the closing balance and paid monthly. Interest rate is annualized and subject to change without notice.