Emergency fund: where to keep it

Life rarely goes exactly according to plan. A job loss, unexpected medical expense, urgent car repair, or broken boiler can quickly turn into a financial emergency. That is why every household should have an emergency fund, a dedicated pool of money designed to cover unexpected expenses without relying on credit cards or expensive loans.

In brief:

• An emergency fund should cover 3 to 6 months of essential living expenses to help you manage unexpected financial setbacks without relying on debt.

• Accessibility and security matter more than high returns. Your emergency savings should be easy to access and protected from significant value fluctuations.

• The best place to keep an emergency fund depends on balancing liquidity, stability and potential returns. Common options include bank savings accounts, money market funds and selected investment solutions.

• Avoid keeping your emergency fund in volatile investments such as individual stocks or cryptocurrencies, as their value may fall when you need the money most.

• TWINO FLEXI may complement your broader cash management strategy. It provides exposure to a diversified portfolio of investments, while investment risk still remains.

In this guide, we will explain the best places to keep an emergency fund, how much you should save, what investments to avoid, and how solutions such as TWINO FLEXI may fit into a broader cash management strategy.

What is an emergency fund?

An emergency fund, also known as a rainy day fund, is money reserved exclusively for genuine financial emergencies.

Typical situations include:

• Unexpected medical expenses.

• Temporary unemployment.

• Essential home repairs.

• Emergency car repairs.

• Urgent family travel.

• Major appliance replacement.

Unlike savings for holidays, a home deposit or retirement, emergency savings should always be available at short notice.

The primary purpose is not to maximise returns, it is to provide financial security when life becomes unpredictable.

How much should your emergency fund be?

Financial educators generally recommend holding between three and six months of essential living expenses.

Your essential expenses typically include:

• Housing costs.

• Utilities.

• Food.

• Insurance.

• Loan repayments.

• Transportation.

• Healthcare.

Examples of emergency fund sizing

If your monthly essential expenses are 1,500 euros, the recommended emergency fund is 4,500 to 9,000 euros.

If your monthly expenses are 2,000 euros, the recommended fund is 6,000 to 12,000 euros.

If your monthly expenses are 3,000 euros, the recommended fund is 9,000 to 18,000 euros.

Some people may prefer a larger buffer, particularly if they:

• Are self-employed.

• Have irregular income.

• Support dependants.

• Work in industries with less predictable employment.

These are general educational guidelines rather than personalised financial advice.

What matters most when deciding where to keep an emergency fund?

When asking where to keep emergency fund savings, many people immediately think about returns. However, an emergency fund serves a very different purpose from long-term investing.

The priorities should be:

Immediate accessibility

You should be able to access your money quickly if an emergency occurs. If accessing your funds takes weeks or requires selling investments at an uncertain price, it may not fulfil the purpose of emergency savings.

Capital stability

Emergency funds should not experience significant value fluctuations. This is why highly volatile investments are generally unsuitable.

Reasonable return

Although safety comes first, earning some return may help reduce the impact of inflation over time. The objective is not to maximise profit but to preserve purchasing power where possible.

The best place for an emergency fund, comparing common options

Different solutions offer different balances between accessibility, security and potential returns.

Bank current account

Advantages, instant access, easy everyday use, very low risk.

Disadvantages, often little or no interest, and inflation may gradually reduce purchasing power.

A current account is practical for keeping a small amount for immediate expenses, but may not be ideal for the entire emergency fund over the long term.

High-interest savings account

For many households across Europe, a savings account remains one of the most common choices for emergency savings in Europe.

Advantages include high liquidity, relatively low risk and interest income (depending on market conditions). Availability and interest rates differ significantly between countries and banks.

Money market funds

Money market funds invest in short-term, high-quality debt instruments.

Potential benefits include relatively low volatility, daily liquidity in many cases, and potential returns that may exceed traditional savings accounts.

However, unlike bank deposits, money market funds can fluctuate in value and involve investment risk.

TWINO FLEXI

For investors seeking an alternative way to hold part of their cash reserves, TWINO FLEXI may be considered alongside other options.

TWINO FLEXI is not a bank deposit and is not covered by a state deposit guarantee scheme. Instead, it provides exposure to a diversified portfolio of investments. Returns depend on the performance of the underlying portfolio, meaning investment risk remains.

Because TWINO FLEXI is an investment product rather than a savings account, investors should carefully review the documentation before investing. Read the Prospectus before making any investment decision.

For some investors, products like TWINO FLEXI may complement, not replace, traditional emergency savings, depending on their individual financial circumstances, liquidity needs and risk tolerance.

What should you avoid for an emergency fund?

Many beginners wonder whether they should simply invest their emergency savings to earn higher returns. Generally, the answer is no.

Individual stocks

Stock prices can fall sharply just when you need the money most. Selling during a market downturn could lock in losses.

Cryptocurrencies

Crypto assets are among the most volatile investments available. Large price swings make them unsuitable for money that may be needed unexpectedly.

Long-term investments

Investments designed for long-term growth, such as equity funds or retirement portfolios, should generally remain invested through market cycles. Using them as emergency savings may force you to sell at an unfavourable time.

Illiquid assets

Property investments, collectibles or private equity can take weeks or months to sell. An emergency fund should never depend on finding a buyer.

A layered approach may offer flexibility

Rather than keeping all emergency savings in one place, some people choose to divide their cash reserves according to how quickly they might need access.

For example:

• One month's essential expenses in an everyday bank account for immediate emergencies.

• Additional emergency savings in a savings account or other relatively liquid solution.

• Depending on personal circumstances and risk tolerance, part of longer-term cash reserves may be allocated to investment products that aim to generate returns while recognising the associated risks.

This approach can balance immediate accessibility with the opportunity to earn returns on money that may not be required immediately. Again, this is a general educational example rather than a recommendation.

Common mistakes people make

Chasing the highest returns

An emergency fund is not designed to maximise investment performance. Security and accessibility should always come first.

Investing all emergency savings

Keeping every euro invested increases the risk of needing to sell during adverse market conditions.

Using the emergency fund for planned expenses

Annual insurance premiums, holidays and Christmas shopping are predictable expenses, not emergencies. These should be budgeted separately.

Ignoring inflation completely

Leaving large amounts in accounts that earn no return may gradually reduce purchasing power over time. Finding an appropriate balance between safety, liquidity and potential returns can help address this challenge.

Building your emergency fund step by step

Building a rainy day fund does not happen overnight. Many people make steady progress by:

• Setting a monthly savings target.

• Automating transfers after payday.

• Avoiding unnecessary withdrawals.

• Increasing contributions whenever income rises.

Consistency often matters more than the amount saved each month.

Final thoughts

When deciding where to keep emergency fund savings, remember its primary purpose is financial resilience. The best place for emergency fund money is one that prioritises accessibility, stability and appropriate risk over chasing the highest possible returns.

For most people, holding three to six months of essential expenses provides a solid financial buffer.

Traditional savings accounts remain a popular choice, while some investors may also consider investment products like TWINO FLEXI for part of their broader cash management strategy. However, it is important to understand that TWINO FLEXI is not a bank deposit, is not covered by a state deposit guarantee, and returns depend on portfolio performance, meaning investment risk always exists.

Whatever solution you choose, an emergency fund is less about earning the maximum return and more about providing peace of mind when unexpected events occur.

FAQ

How big should an emergency fund be?

A commonly recommended range is three to six months of essential living expenses. Some people, such as freelancers or those with irregular income, may prefer to keep a larger buffer.

Where to keep emergency fund savings?

The most suitable location is generally one that offers quick access, capital stability and an appropriate balance between liquidity and potential returns. Common options include bank current accounts, savings accounts, money market funds and certain investment products, depending on individual circumstances and risk tolerance.

Should an emergency fund earn a return?

Ideally, yes, but earning returns should never compromise accessibility or expose the emergency fund to excessive risk. Preserving capital and ensuring funds are available when needed should remain the main priorities.

Looking for a way to make part of your cash work harder while maintaining flexibility? Learn more about TWINO FLEXI, explore how it works, and be sure to read the Prospectus before making any investment decision.

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This material is for informational purposes and is not individual investment advice.