With today’s inflation, money in the bank is losing value day by day. However, it is always necessary to keep some liquidity in case of unforeseen events. That’s why experts recommend having a “cushion” of cash in your savings accounts to cover at least three months of expenses.

Life is full of unforeseen events. Financially, too. Sometimes they are positive, such as a pay rise, but sometimes we have to deal with unpleasant surprises that put a dent in our pockets. These can range from a one-off expense, such as replacing a household appliance, to something more serious, such as suffering a disabling illness or becoming unemployed.

To deal with these eventualities, it is necessary to have an emergency fund. The old custom of stashing your money in your mattress or any other hiding place in your home allows you to have it at your disposal immediately, but it is not advisable because of the risk of theft and the lack of profitability.

The best thing to do is to turn to banks, although you should bear in mind the limitations of the Deposit Guarantee Fund for Credit Institutions so that your money is always protected.

Ensure your savings

As detailed on its website, this body “aims to guarantee deposits in money and securities or other financial instruments constituted in credit institutions, with a limit of 100,000 euros for money deposits”.

This makes it inadvisable to have more than 100,000 euros in accounts and time deposits at the same institution, as the fund will only cover up to 100,000 euros per holder in the event of the bank’s failure.

If, for example, you had 120,000 euros in a bank that has failed, even if it was in several accounts or deposits, this body would only return 100,000 euros and you would lose the other 20,000. This is why it is advisable to distribute the money among different institutions so that the accounts and deposits do not exceed the guaranteed limit in any of them.

How much are we talking about?

Only in very exceptional cases should our emergency fund reach 100,000 euros, especially at a time like this, when high inflation means that the money deposited in the bank loses value month after month. However, the optimal amount will ultimately depend on your circumstances: basically, what your expected expenses are and what income you can count on in case of an adverse event.

Experts generally recommend that the financial buffer should cover at least three months of expenses. Keep in mind that if we maintain too low an average balance in our account, we can go into the red, which would generate financial charges for the overdraft.

The OCU, for example, states that a prudent amount in current accounts “can be the equivalent of three months of your salary“. It does not recommend more because these accounts “are not the best place to keep our savings, as practically no entity rewards them with interest”.

As for the maximum, no more than what is necessary to cover six months of expenses is usually recommended. The ‘Finance for All’ portal, an initiative of the Bank of Spain, the National Securities Market Commission and the Ministry of Economic Affairs and Digital Transformation, advises “accumulating a fund equivalent to between three and six months of expenses”. From this amount onwards, it is a question of looking for investments that offer a good return.

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