Are You Really Prepared for a Financial Emergency?

If you noticed you're not saving as much as you used to, you're not alone. Bankrate released its annual Emergency Savings Report, and 73% of those surveyed said they were saving less due to high inflation, changes in job statuses or higher interest rates.

They also found only 41% of those surveyed would use savings if a surprise bill came due. Instead, they would opt for borrowing money, putting it on a credit card and spreading the payments out over time or reducing their spending on other expenditures.

This is a slight decrease year-over-year, according to Bankrate. In 2024, 44% of respondents would use savings for a surprise bill.

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Emergency savings by age

Not surprisingly, baby boomers feel more comfortable about their savings than their younger counterparts:

a chart explaining saving comfort levels by age

However, there's a commonality among those surveyed: Two in three Americans share the concern they wouldn't be able to cover their living expenses for the month if they encountered a job loss.

Factors influencing people saving less

Bankrate's senior economic analyst Mark Hamrick notes, "The cost of living continues to rise, prompting more individuals and households to turn to credit cards when in a bind."

While credit cards do offer many perks, such as 0% introductory rates, cash back rewards and flexibility in budgeting, Hamrick cautions over reliance on them. "They are a terrific tool when used wisely and effectively. But with interest rates still high, we need to avoid a deepening debt burden which could make it more challenging to save."

Bankrate found these are the culprits preventing people from saving more money:

a chart showing why Americans cannot save as much

Inflation continues to be a savings preventer

Total inflation rose to 2.9% in December 2024. The biggest drivers behind inflation were shelter, energy and food prices. In essence, prices continue to rise quicker than consumers can keep pace.

And President Donald Trump's immigration and trade policies are not inspiring confidence. Vanguard's first-quarter fixed income outlook report concludes, "inflation progress to stall," based on proposed policies from the president. Most notably, Trump wants to impose tariffs of up to 25% on imported goods from Mexico and Canada, with proposed tariffs also impacting goods from the European Union and China.

If the president implements tariffs and some of his other trade policies, Vanguard says, "We expect modestly higher core inflation of around 20 to 40 basis points in the U.S. in 2025."

Budgeting becomes even more crucial

With inflation placing a squeeze on more budgets, the emphasis shifts on identifying unique ways to save more money. And the first step to that approach is to take a fresh look at budgeting.

Some of our favorite budgeting apps not only keep track of your finances, they can help you set savings goals and stick to them. They can also identify spending patterns you might need to course correct to optimize savings. Two of our favorites are:

Quicken's Simplifi: It allows you to set a personalized spending plan that aligns with all of your other savings and investing goals. The projected cash flow tool is also pivotal in helping you set realistic savings goals, while adjusting spending behaviors to meet those benchmarks.
Monarch: If you work with an investment advisor or plan to, this is app allows you to share your accounts with advisors. Having a real-time depiction of your finances can help create more accurate savings and investment goals.

Find better savings solutions

The Federal Reserve cut interest rates three times by the end of 2024. Although savings account interest rates took a dip as a result, you'll still find many savings options to grow your money.

High-yield savings accounts can help you earn a healthy rate of return while giving you access to your cash when you need it. A couple of things to keep in mind: Some banks impose monthly fees if you don't maintain a minimum balance, so pay close attention to any restrictions. Also, high-yield savings accounts come with variable rates, meaning if the Fed cuts rates, it might affect how much you can earn.

Another savings option is a certificate of deposit (CD). CDs do well if you don't mind parking your money away for a few months to a few years while achieving shorter-term savings goals. Best of all, the rate you lock in remains the same throughout the term.

That said, CDs aren't the best solution if you need easy access to your money at all times. When you withdraw money from a CD before the term ends, it can close the account, and the withdrawal fees could negate any interest earned. If you want more flexibility, consider a no-penalty CD.

The bottom line

Bankrate's survey shows many Americans are struggling to save more money due in large part to inflation. And with President Trump's proposed policies on adding tariffs to imports, it could lead to higher costs on everyday goods.

While you can't control prices, you can control to some degree how you manage money. Having the right budgeting app can provide a fresh perspective while keeping your savings goals a primary focus. And choosing the right savings or CD vehicle can ensure you reach your savings goals. That way, if an unexpected expense hits, you won't have to go into debt for it.

Sean is a veteran personal finance writer, with over 10 years of experience. He's written finance guides on insurance, savings, travel and more for CNET, Bankrate and GOBankingRates.