An emergency fund is money set aside for costs that were not in the plan: a car repair, a medical bill, a broken appliance or a gap in income. This lesson explains what such a fund is for, the kinds of account people keep one in, and how federal deposit insurance covers money held at banks and credit unions.
It matters because a cost with no money set aside for it is usually met by borrowing, and borrowed money carries interest and fees on top of the original bill. Where the money is held matters too. Some places that look alike are protected by the federal government up to a stated amount and others are not, and the difference only shows when an institution fails.