The Importance of Emergency Funds

Emergency funds are like submitting an assignment a few days early instead of 11:59 PM on the due date. Nobody starts bragging about it, everyone says they’ll start it soon, and the people who actually do it won’t regret it.

Because when life hits you with a random bill at the worst possible time, an emergency fund turns panic into a minor setback. What most don’t realize is setting one up is way easier than most people think.

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Why emergency funds are boring and why that’s perfect

Emergency funds aren’t meant to be exciting. They’re not trying to outperform the market or make you feel like a genius.

They exist for one reason: to keep you from getting forced into bad choices**.** It could be any financial complication like credit card debt, outstanding loans, or falling for a WallStreetBets “genius investment opportunity”. A boring pile of cash prevents all of the above.

My personal recommendation is to keep said emergency fund at a different bank or institute. If your emergency fund sits beside your chequing account, it’s going to get used for stuff that isn’t an emergency. It’s human nature, and temptation takes over.

So my favourite setup is simple: keep the emergency fund at a bank that is not your main day-to-day bank. You still have access to it if you need it, but it’s not staring you in the face every time you open your banking app. Out of sight really does help keep it out of mind.

What EXACTLY an emergency fund is for

An emergency fund is cash you can access quickly for a true “life happens” moment. The rule of thumb you’ll hear everywhere is 3–6 months of living expenses.

For most students and early-career individuals such as myself, 3 months more than suffices and is a strong target because expenses are usually simpler and responsibilities are lower. A 6-month emergency fund tends to make more sense later in life, especially if you have dependents, a mortgage, bigger fixed bills, or a job situation where finding a new role could take longer.

*The key detail: this is based on expenses, not income. Rent, groceries, transit, phone, your essentials.

When would you actually use it?

Emergencies aren’t always dramatic. They’re usually inconvenient and expensive.

Here are a few realistic examples:

• Your laptop craps out on you right before midterm season.
• A family situation pulls you away from work or school for a bit.
• A car repair shows up out of nowhere.
• Your laptop dies at the worst time and you genuinely need it for school/work.
• A new internship or job opportunity brings you to a new city and you need to pay the deposit/first month and last month’s rent.

A good rule is: unplanned + necessary + time-sensitive. If it fails one of those, it’s probably not an emergency.

Quick calculation example: 3 months of living expenses in Canada

Let’s use a very simple, very generic setup: shared housing, basic lifestyle. This is just an example to show the math. These numbers are just pulled from myself and students in my area.

Say your monthly essentials roughly look like this:

• Average rent in shared housing around me: $750
• Groceries: $350
• Essentials/misc: $150
• Emergency coffee runs when studying late on campus: $30

That’s about $1,280/month.

So a 3-month emergency fund would be:
$1,280 × 3 = $3840

If your essentials are closer to $1,500/month, then you’re aiming at:
$1,500 × 3 = $4,500

If that number feels huge right now, start with a “mini emergency fund” first, and continuously add to it month by month or every time you earn some income. Even having $500–$1,000 saved can prevent a lot of damage while you build toward the full target.

Where to keep an emergency fund

An emergency fund should be safe and easy to access. That usually means straight cash in a High-Interest Savings Account (HISA) or a high-interest everyday account.

You’re not trying to maximize returns here. You’re trying to avoid risk and avoid friction. If it takes a week to access the money or you can lose value right when you need it, it’s not doing its job.

What is a HISA?

A High-Interest Savings Account is basically a savings account designed to pay more interest than a typical savings or chequing account. Interest is commonly calculated daily and paid monthly. The rate can change over time, but the big advantage is that your money stays available.

While you are reading this, you might be wondering: “why not just invest this money into an ETF or Nvidia like everyone is doing right now?”. Well 2 reasons: 1. Liquidity and 2. Volatility.

• Liquidity means how easy an asset can be converted into cash. Having cash stored in a savings account is a fully liquid asset, so it is available to you instantly. Now when you tie up your fund in the stock market, you need money → you sell the asset → your order takes a few hours to fill → your broker needs to authenticate the transaction → Easily be a day before you get that cash in hand.
• Volatility is simple: your emergency fund is now floating in the market somewhere → the price fluctuates daily → a certain president posts something on Twitter → you lost 10% of your emergency fund and need the cash now → Oh well.

Canada: Big banks vs digital banks (interest rates)

Bank rates change every so often, but here are examples of posted, non-promo rates you can use as a reality check (rates gathered as of January 2026).

Big banks

TD’s posted rates for the classic Everyday Savings Account is showing **0.01%**interest, whereas their ePremium Savings Account is 0.00% interest on balances under $10,000. Yikes.

Scotiabank’s MomentumPLUS Savings Account lists a regular interest rate of 0.40%, along with a period interest rate where the longer your account is funded, the higher the rate you get (starting at +0.20% after 90 days).

RBC’s High Interest eSavings Account offers a 0.55% on their savings account, for all balances.

BMO’s Savings Amplifier Account offers 0.50% interest on all balances. Meanwhile: their Savings Builder structure shows 0.10% base interest, and +0.50% (totalling 0.60%) when you meet the monthly savings condition (increase the accounts monthly balance by at least $200 per month).

*Voilà. I’ve also just shown you the importance of shopping around when looking for new banking products.

Digital-first

EQ Bank’s Personal Account shows a 1.00% base rate, and 2.75% if you meet their qualifying recurring direct deposit condition (direct deposit $2,000 per month).

Wealthsimple’s Cash Accounts have an interest rate of 1.25% for core clients.

Both Tangerine and Simplii Financial;s signature savings products earn 0.30% on any balance.

*Why do digital banks often pay more? Usually because they have fewer physical branches and thus have lower operation costs, and they compete harder on rates to attract deposits.

It is also important to consider what suits you when looking for a bank, if you value in-person customer service, physical branches to visit, etc. The table below can help you with that:

Brick & Mortar vs. Digital Banks

The simple setup that actually works

Open a dedicated emergency fund account (ideally at a different bank than your daily one). Name it something obvious like “Emergency Fund, Do Not Touch >:(” Then automate a small transfer on payday.

Even $25–$50 per week builds momentum fast, and the habit matters more than the starting amount.

Closing message

Emergency funds don’t make you rich. They keep you from getting wrecked.

Once you’ve got one, everything else in your financial life gets easier because you’re not one surprise expense away from debt. Start small, keep it separate, and let automation do the heavy lifting.

TL;DR

• Emergency funds are boring on purpose: they prevent avoidable debt and forced decisions.
• Aim for 3 months of living expenses as a student/early career professional; 6 months fits bigger responsibilities.
• Keep it separate from your everyday bank to reduce temptation.
• Use a HISA or high-interest everyday account: safe, liquid, earns interest.
• ❌ NO STOCKS / ETFs / GICs
• Digital-first banks often post higher rates because of lower overhead and stronger competition.

Disclaimer

This is general information, not financial advice. Interest rates and account features change frequently, and some banks may offer limited-time promotions (not the focus here). Always verify the current rate, conditions, access rules, and fees on the bank’s official website before opening an account.