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Fewer Americans Than Ever Before Could Cover a $2,000 Expense

by Christy Bieber | Jan. 12, 2021

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

Emergency Savings Jar

Image source: Getty Images

Americans are in a precarious position when it comes to emergency savings.

If you had to come up with $2,000 to cover an unexpected expense, would you be able to do it? If your answer is no, you're definitely not alone. Millions of your fellow Americans would be hard-pressed to find the funds, too.

In fact, according to the Federal Reserve, the number of people who would be able to access $2,000 for surprise bills declined dramatically this year. This is worrying as almost a third of Americans may need to do so.

Finding $2,000 to cover unexpected costs would be a major challenge for millions

The Federal Reserve's survey looks at consumers' expectations and access to credit every four months. It found the probability someone would be able to cover an unexpected $2,000 expense had fallen to just 65.6% as of October 2020. This is a series low, and it's a big drop from 69.8% in 2019.

The coronavirus pandemic has, unfortunately, caused a sharp drop in the number of people able to find the money for such a large unexpected expense. In fact, the probability someone would be able to come up with $2,000 was 69.4% at the beginning of 2020, but the numbers fell from February onwards.

Sadly, the fact that so many people likely couldn't find the funds they need for $2,000 worth of surprise costs is a big problem. Many Americans will inevitably face a situation where they need to do so. In fact, The Federal Reserve put the average chance of needing to come up with this much money over a one-month period at 31.8% in 2020.

How to make sure you're prepared to cover a large surprise bill

The likelihood of needing $2,000 to pay for surprise bills is far too high for you to be unprepared. You need to plan in advance so you're ready when these unexpected expenses come your way. The best way to do that is to save up an emergency fund in a high-yield savings account.

Ideally, the goal should be to set aside enough money in liquid savings that you could cover three to six months of living expenses. Amassing such a large fund is going to take time and effort, but you can start smaller -- try to save at least $2,000.

It's a good idea to rework your budget and drop all non-essential spending until you've saved at least that much. Once you've got your starter emergency fund, you can add to it over time.

What to do if you're faced with a large surprise bill before you have an emergency fund

Unfortunately, you may face an emergency before you've saved enough to cover it. In which case, it's too late to start building an emergency fund and you'll have to find a way to cope with the immediate situation.

If you're able, try to avoid borrowing and see if you can raise the funds from another source. This could be harder to do safely during the pandemic. But perhaps you could sell some non-essential possessions you don't use anymore or pick up some extra work on the side.

If borrowing is your only option, explore the possibility of using a 0% APR credit card. These cards -- which offer an introductory rate that allows you to avoid interest for a limited period -- could buy you the time to pay off your surprise expense without owing interest.

If you can't qualify for a 0% interest card, you can also consider a personal loan or borrowing from friends or family. Do your best to avoid payday loans or other debt with extremely high rates. Taking out these types of loans can make it really hard to get back on your feet financially once the emergency passes.

After you've dealt with the immediate expense, rework your budget to make a plan to repay any debt you've taken on and build an emergency fund. That way you can avoid a similar situation in the future.

These savings accounts are FDIC insured and can earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2021.

Two top online savings account picks

Rates as of Dec. 29, 2020 Ratings Methodology
Logo for CIT Bank Savings Builder
Logo for American Express® High Yield Savings Account
CIT Bank Savings Builder American Express® High Yield Savings Account
Member, FDIC Member, FDIC
Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. = Best
= Excellent
= Good
= Fair
= Poor
Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. = Best
= Excellent
= Good
= Fair
= Poor
Open Account

On CIT's Secure Website.

Open Account

On American Express' Secure Website.

Read Review Read Review

APY: Up to 0.45%

APY: 0.50%

Best For: No monthly maintenance fee

Best For: High APY

Min. to earn APY: $25k or $100 monthly deposit for highest tier

Min. to earn APY: $0

About the Author

Christy Bieber
Christy Bieber icon-button-linkedin-2x

Christy Bieber is a personal finance and legal writer with more than a decade of experience. Her work has been featured on major outlets including MSN Money, CNBC, and USA Today.

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