I’m a Banking Professional: 4 Reasons I Have a Separate Emergency Savings

A recent Empower study found that only about a third of U.S. adults could handle an emergency expense. Another 54% of consumers feel they don’t have enough money saved up to cover an emergency should it arise.

From something as major as a lost job to a more minor issue of a flat tire, having an emergency fund is crucial to keeping you — and your household — afloat. And while you can theoretically combine your savings with your emergency fund, it might be better to keep them separate.

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GOBankingRates spoke with two banking professionals, Christopher M. McCarthy, central group area manager and senior vice president at Univest Bank and Trust Co , and Juan Londono, branch manager at Affinity Federal Credit Union , about why they have a separate emergency savings — and why others might want to do the same. Here’s what they shared below.

And if you don’t have an emergency fund, personal finance expert Suze Orman offered three easy steps to get one started .

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Greater Financial Security

Perhaps the number one reason for keeping a separate emergency fund is that it provides greater financial security during unexpected events.

“An emergency fund provides a financial cushion for unexpected events such as job loss, medical emergencies, car repairs, or home maintenance issues,” said Londono. “It helps cover expenses without the need to rely on credit cards or loans.”

“Remember the cost of goods and services are increasing, so maintaining an emergency savings cushion is paramount,” McCarthy added.

According to him, these are some of the top things to consider when deciding how much to save in your separate fund:

• Medical costs and related emergencies
• Monthly bills (in case of a lost job)
• Home repairs (e.g., plumbing and electrical issues)
• Car repairs, maintenance and the potential need to replace the vehicle
• The age and usage of current home appliances (and when they might need to be replaced)

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Reduced Temptation To Spend

When you have a separate emergency fund, it can reduce the temptation to spend the money when you should have kept it tucked away for a rainy day.

“For some, the temptation of having access to the funds for discretionary purchases may be too difficult,” McCarthy said. “In those cases, having separated savings options and aligning that with structured savings behaviors will help them to get a plan that fits their needs in place.”

Even if you’re not someone who’s easily tempted to spend money, that little bit of separation doesn’t hurt.

Avoids Excess Debt

Another big reason to have a separate emergency savings is that it can help you avoid the need for costly borrowing options — like short-term or high-interest loans.

“Without an emergency fund, you may be forced to use high-interest credit cards or payday loans to cover urgent expenses,” said Londono.

According to the Federal Reserve , the average APR on a credit card is nearly 23%. Payday loans have financing fees that, on average, equates to roughly 400% APR .

As McCarthy pointed out, “the shelf life of the item being purchased may be exceeded by the timeframe of the repayment period,” particularly when it comes to these short-term credit options.

Peace of Mind

For Londono, having some cash set aside in a separate account for emergencies is also a way to get some much-needed peace of mind.

“Knowing that you have a safety net for unforeseen expenses provides peace of mind,” he said. It also cuts down on finance-related stress and anxiety so you can actually focus on other goals like investing or buying a home.

Londono added that separate emergency savings comes with increased financial flexibility. If something comes up — like starting a new business or relocating to a new place — that dedicated fund makes it easier to handle the cost without jeopardizing other financial goals.

Why You Might Want To Have a Separate Emergency Fund, Too

McCarthy’s and Londono’s reasons for having a separate emergency fund could apply to nearly anybody. Having that financial cushion can make a huge difference if and when the time comes that you need it. And it can protect your other finances — like your savings and investments — if something happens.

“Making unexpected large purchases can be very stressful and have a significant impact on your financial wellbeing. Having access to liquid funds for emergency purchases needs to remain an essential part of your budgetary process,” said McCarthy. “In fact, you should be adjusting your spending habits to reflect increased savings behaviors when possible.”

In terms of how you go about it, that’s ultimately up to you. McCarthy did have some advice, however.

“One thing that I would recommend is to diversify your savings options to maximize your earnings potential. As rates are higher, place excess discretionary savings in multiple savings options to increase the return on your investment,” he said.

Other options include using money markets or certificates of deposit (CDs), which can earn more interest on any cash you don’t need right away.

“Ladder CDs to ensure that you have a consistent stream of income that becomes available over designated periods of time with the option to renew or utilize the funds at maturity,” said McCarthy.

This article originally appeared on GOBankingRates.com : I’m a Banking Professional: 4 Reasons I Have a Separate Emergency Savings