68% of Americans couldn’t cover their living expenses for even a month if they lost their job, survey finds. The good news? Now is the best time in years to fix that.

Recession — and layoff — fears loom large over many households. Nearly half of U.S. adults feel the country is already in a recession, a Morning Consult report found. Economists say the chance of a recession in the next 12 months is somewhere around 61%, according to a recent Wall Street Journal survey; while economists in a separate Bloomberg poll said it was more like a 70%. And although unemployment dropped to 3.4% in January, government data show more than 1.2 million people lost their jobs in the first month of the year.  

But even if we don’t enter into a recession in 2023, unexpected expenses are all too common. One essential way to protect yourself from all of that? Sock away money in an emergency fund to prepare for any unexpected expenses, says Bankrate senior economic analyst Mark Hamrick.  “It isn’t a question whether these events will happen, only when and how much they will cost,” Hamrick says.  The good news here is that many high-yield savings accounts are now paying more than they have in 15 years at 4% or higher (see the highest savings account rates you may get now here.)

How are Americans doing when it comes to financial security? Not well enough, a recent Bankrate report found. In the event of a major economic fallout, 68% of survey takers said they wouldn’t be able to cover their living expenses for a month if they lost their job today. One in four went as far as to say they would be forced to put an unexpected $1,000 expense on a credit card and pay it off over time — and that’s without losing their job. 

How much should you be saving in an emergency fund?

To avoid compounding any problems with already high credit card rates — currently 19.91% — Kerry Keihn, a financial adviser at Earth Equity Advisors, says starting an adequate emergency savings buffer can add some protection for any unexpected expenses. At a baseline, Keign says he “would always suggest a minimum of three-to-six months’ worth living expenses on hand to use for an emergency,” and that you may consider more if “you have dependents, if you own your home, if you have major medical expenses or home repairs you know are right around the corner, or if your income is unstable.”

See the highest savings account rates you may get now here.

And if you think your job is on the line, you may need even more. Nearly a third of all workers said they are worried their job may not survive the next wave of budget cuts or layoffs, a December LinkedIn report found. Employees holding positions in product management, quality assurance and marketing positions felt the least secure with their job future, according to the report.

For those with feelings of job insecurity, Keign says holding more cash on hand is the best way to buffer those worries. For those who work in an “industry that is experiencing layoffs, generally, I recommend six to 12 months’ worth of emergency savings as a goal,” she adds.

How much cash is that? The latest government data show the average monthly expenses for the average U.S. household — including food, health care, transportation and entertainment — was around $5,577 in 2020. A three- to- six-month emergency savings at that income level amounts to $16,732 to $33,363. A larger six- to- 12-month savings account would then be anywhere all the way up to $66,928 in liquid cash.

See the highest savings account rates you may get now here.

How to start your emergency savings account?

If you’re like most, gathering together a large amount of cash like that is easier said than done. The median amount of cash saved by Americans under the age of 35, not including retirement funds, was just $3,240 last year, according to data from the Federal Reserve’s Board Survey of Consumer Finances. Those from 55 to 64, meanwhile, only had $6,400 on hand, the report found. 

If you’re like most of us and you’re looking for places to start, Hamrick says to start by making a household budget to assess any potential places for budget cuts. After analyzing fixed expenses, such as rent or mortgage payments, utilities, and the cost of food, you can get a better idea of how much is available for discretionary expenses and where to ultimately trim your spending. 

“There’s an adage along the lines of ‘save first’ and ‘spend later,’ which would suggest a reordering of priorities so that all our financial or money goals can be met,” Hamrick says. “In the intermediate term, some might benefit by looking to reduce fixed and discretionary expenses, or spending, while seeking to boost income including through employment.”

See the highest savings account rates you may get now here.

What to do with all that cash? 

Now that you’re ready to save, where should you store your emergency savings? One place to consider, Hamrick says, is with a high-yielding savings account (see the highest savings account rates you may get now here). “For those who have been or are planning to sock money away for emergencies, it truly pays to shop around for the best rates,” he says, adding that “high-yield savings yields are the highest since 2008.”

To be sure, the average savings account today delivers a rate of just 0.33%, according to the FDIC. However, high-yield accounts offer annual percentage yield, or APY, of more than 15-times higher than that. Just take these three with the best available rates today for example (Check out the full list here):

• Varo Savings Account: 5% APY
  • Make the required $1,000 in electronic deposits for your paycheck, pension or government benefits from your employer or government agency, end the month with a positive balance in both a Varo Bank Account and Savings Account, and you’re eligible. But be sure to read the details: balances that don’t meet the requirements and those over $5,000 only earn 3% APY. 

• Centier Bank, Connect Savings: 5% APY
  • Link your checking and savings account to qualify for this savings rate. Just be sure to make the minimum deposits and follow the steps in the fine print. 

• MySavingsDirect MySavings Account: 4.35% APY
  • The rate offered here is still one of the highest on the market. Just fill out your online application and get started.

“This is a situation where having more money to work with, including higher yielding returns, can make an important difference,” Hamrick adds.

Just be sure to review any possible restrictions or penalties that you could face when opening an account, “especially if you have to withdraw the funds you have earmarked for an emergency,” Keihn adds.  

Is there such a thing as too much?

Once you’ve built up your emergency cushion, Keihn says investing any excess is the next thing to consider. “Having too much in cash can hurt you since it does not keep up with inflation,” Keihn says. 

Take stock funds for instance. A high-yield savings account can indeed deliver a comfortable return, however that rate is often not permanent. A standard index fund, meanwhile, can deliver much larger gains on your investment over the long term. Although S&P 500 trackers like the SPDR® S&P 500 ETF Trust (SPY) recorded a 1-year loss of 5.33% through Feb. 17, it delivered more than twice as much over the longer term. Over the past three years, SPY had a gain of 8.17%, according to Morningstar data. The fund also had gains of 10.20% and 12.42% over the 5- and 10-year periods, respectively. 

If you decide to go that route, it’s probably wise to work with a professional and ensure you know where you’re investing your money. “This is critical so you can ensure that you are voting with your dollars and aligning your investments with your value,” Keihn says.