Do you have a rainy-day fund in place? If not, it may be time to reconsider, where you keep your cash can be just as important as having it.
A widely accepted rule of thumb is to hold enough in reserve to cover at least three months’ essential outgoings, and ideally up to six. These are your core expenses, such as rent or mortgage payments, food, council tax and utilities, rather than discretionary spending. In reality, this can easily amount to a five-figure sum, particularly if you’re aiming for a six-month buffer.
Emergency funds need to be readily accessible, as they may be required at short notice, for example, to cover an unexpected large expense. That means keeping the money in a place that offers instant access, with no penalties and no risk to your capital. In other words, this is about cash savings, not investments.
Two common options include:
- Easy access accounts:
There is a wide range of instant access savings accounts available, from app-based providers to traditional high street banks. The most competitive rates, currently over 4%. are often offered by smaller institutions. While some names may be unfamiliar, deposits are protected up to £120,000 (£240,000 for joint accounts) under the Financial Services Compensation Scheme (FSCS), provided the provider is UK-authorised. Do bear in mind that FSCS protection applies per banking licence, and some banks operate under multiple brands (for example, Halifax shares a licence with Lloyds Bank). - Cash ISAs:
Although changes are expected for those under 65 from next April, the 2026/27 tax year still allows up to £20,000 to be held in a cash ISA. Interest earned within an ISA is tax-free, although many savers may also benefit from the personal savings allowance (£1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers) on non-ISA savings. One limitation is that ISAs cannot be held jointly, which may make them less practical for couples compared to shared savings accounts.
It’s worth reviewing your cash reserves regularly to ensure you’re earning a competitive rate and holding an appropriate level of savings. Keeping too much in low-interest cash could mean missing out on potential investment growth.
The value of investments and any income from them can fall as well as rise, and you may get back less than you invest.
29th May 2026
