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4 places to park your emergency fund in 2025 and what to avoid

Upstox
By Upstox News Desk

3 min read | Updated on November 13, 2025, 11:46 IST

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SUMMARY

A designated cash reserve created especially to handle unforeseen costs or financial emergencies is known as an emergency fund.

emergency fund

For parking emergency fund, people should avoid any asset that is highly volatile or illiquid. | Image: Shutterstock

Emergencies can occur at any time; they never come calling. And building up an emergency fund is one of the most crucial ways to deal with such situations.

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An emergency fund: what is it?

A designated cash reserve created especially to handle unforeseen costs or financial emergencies is known as an emergency fund. It is a helpful tool for preserving stability in unpredictable times, making sure you can deal with unforeseen expenses, medical problems, or losing your job without going into debt.

4 places to park your emergency fund

The primary goal for these funds is quick access and low risk.

1. Savings Account

Best for immediate liquidity and safety, with funds accessible instantly via online transfer and usually covered by deposit insurance (e.g., under DICGC in India up to ₹5 lakh). This is ideal for the small, most accessible portion of your fund.

Banks like SBI, HDFC Bank, ICICI Bank, Axis Bank Ltd., and Yes Bank Ltd. generally offer rates around 2.50% p.a. on their savings deposits. In contrast, Small Finance Banks (SFBs) provide significantly better returns, with their interest rates typically ranging between 3.50% p.a. to 5.50% p.a. depending on the deposit slab.

2. Liquid Funds
For the most of the emergency corpus, liquid funds are highly recommended. Investments in short-term money market instruments are made by these low-risk debt funds. These are very liquid; some schemes provide quick redemption up to a daily maximum of Rs 50,000, while others process redemptions on the following business day (T+1). Generally ranging from 6% to 7% annually, but this can vary, these deals may provide higher returns than a conventional savings account.
3. Short-Term Fixed Deposit (FD)

Good options for funds you may not need immediately. A Short-Term FD (up to 12 months) offers guaranteed returns, though premature withdrawal may incur a minor penalty. A Sweep-in account links your savings and FD to automate cash optimisation while preserving instant access. Money can be accessed instantly via a linked account.

4. Recurring Deposits (RDs)
RDs encourage a disciplined, set monthly payment habit, and they are quite helpful for steadily developing the emergency fund. Although RDs provide assured returns and permit early withdrawals, they are not the best option for depositing the entire investment because breaking the RD before it matures frequently results in a penalty or a lower interest rate, which somewhat jeopardises the necessary full liquidity.

Where to avoid parking emergency fund

Avoid any asset that is highly volatile or illiquid, as these compromise safety and access.

  • Stocks are highly volatile in the short term. There are chances that the fund’s value could drop sharply when money is needed, leading to potential losses.
  • Equity Mutual Funds are cubject to market fluctuations, making them unreliable for emergency liquidity.

  • Real Estate is a highly illiquid asset. Selling property takes time and may require accepting a lower price during emergencies.

  • Long-Term Fixed Deposits (FDs) often involve penalties or reduced interest for premature withdrawal, reducing their suitability for immediate financial needs.

You should set aside three to six months' expenses as a minimum for emergencies.

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Disclaimer: This article is written purely for informational purposes and should not be considered investment advice from Upstox. Investors should do their own research or consult a registered financial advisor before making investment decisions.

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About The Author

Upstox
Upstox News Desk is a team of journalists who passionately cover stock markets, economy, commodities, latest business trends, and personal finance.

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