These 5 banking tools can help you build a ‘rainy day’ fund before year-end

Many Americans end the year with a long list of bills and little (or no) cash left over. Holiday spending often adds financial pressure while everyday expenses continue to climb. And if an unexpected cost hits at the same time, they may need to rely on credit cards to get by.

That’s why building a small rainy day fund is so important. It can give you breathing room when surprises happen.

A rainy day buffer can be a great way to cover the small emergencies that disrupt your budget, like a flat tire or an unexpected trip to urgent care. You don’t need thousands of dollars to avoid going off budget in these situations. And a few smart banking tools can help you build the financial cushion you need before the end of the year.

Many households face challenges when it comes to savings.

The Federal Reserve’s 2024 Economic Well-Being report found that 37% of Americans can’t cover a $400 emergency expense with cash. Meanwhile, LendingClub’s Paycheck-to-Paycheck report showed that more than 60% of U.S. adults live paycheck to paycheck (including 45% of consumers in high-income groups). That’s why building a rainy day buffer is so important.

A rainy day fund covers smaller, short-term emergencies. Think: car repairs, doctor visits, unexpected prescriptions, and higher seasonal utility bills — basically any smaller, unexpected expense that isn’t typically part of your regular monthly expenses.

An emergency fund, by comparison, is meant to help you through larger financial emergencies such as losing your job or a major health crisis.

Both types of savings are important, but they play different roles in your household budget. Even a small savings fund protects your finances by reducing your dependence on credit cards and other types of debt. Most of all, a rainy day fund gives you more control when unexpected bills threaten to disrupt your finances.

Many banks (especially online banks) offer features that make it easier to turn savings into a habit. You can find financial apps outside of your bank to help support your savings goals too. These tools can automate the savings process, help create separate savings goals, and grow your cash at a faster rate.

Automating contributions to your savings account allows you to save without overthinking (and on a schedule you control). You can set up a daily, weekly, or paycheck-based transfer schedule and grow your rainy day fund on autopilot.

Many banks offer automatic transfer features within their online dashboards (Wells Fargo, Chase, and Ally Bank are a few examples). Automated savings tools support consistent saving because you decide the amount and timing ahead of time when you create your budget. But you can also adjust the transfer plan at any time if your income changes.

Round-up features essentially move small amounts of money to your savings every time you spend. When you make a purchase (typically using a debit card from a linked checking account), the bank rounds the transaction up to the next dollar and shifts the difference to savings.

A few popular examples of round-up savings include:

Round-ups work well because they can fit smoothly into your current spending habits. And small savings amounts can add up over time when you stay consistent, even on a tight budget.

If you saved $2.35 every day for a month (30 days), you would build $70.50 in savings with no extra effort.

Today, the average savings account rate is just 0.4%, according to the FDIC. At less than half a percent, you won’t earn much interest on your savings with a traditional savings account.

However, high-yield savings accounts (HYSAs) pay interest well above the national average. In fact, some of the best high-yield savings accounts currently offer rates of up to 4% or more.

For example, if you deposited $1,000 into a savings account that earns 0.4% APY and let your money sit in the account for one year, your ending balance would be $1,004.01 (your $1,000 contribution, plus $4.01 in interest).

But if you put that $1,000 into a high-yield savings account that earns 4% APY, you’d have a balance of $1,040.81 in one year. That’s an extra $36.80 in interest. Of course, the more you deposit, the greater your interest earnings will be.

In other words, taking advantage of higher interest rates helps your rainy day fund grow faster without extra work on your part. So, it’s a good idea to shop around and compare savings account rates and features to ensure you’re getting the best deal available.

Some banks offer another useful feature called “savings buckets.” This tool creates mini savings categories within a single account. You can assign a bucket to your rainy day fund, one to holiday savings, another to travel, and so on. It’s similar to a digital envelope budgeting system, but specifically designed for savings.

Savings buckets can help you stay organized because the money stays in one account while each goal has a separate label, making it easier to track your progress and ensure you don’t spend money earmarked for a different purpose. Numerous online banks offer this feature, including Ally and SoFi.

5. Linked checking and savings

Once you have a little cash in your rainy day fund, linking your savings account to a checking account at the same bank can be incredibly helpful.

For one, it allows you to transfer money instantly when you need to cover an upcoming bill without delay. It also makes it easier to automate your savings contributions. And some online banks even offer higher “relationship” savings rates and other perks when you open multiple types of deposit accounts with them.

Discover and Capital One are two examples of online banks that offer linked accounts with high APYs and user-friendly apps. When checking and savings work together, you gain better visibility of your overall financial picture and faster access to your money.

Read more: What is relationship banking, and is it worth it?

Creating even a small rainy day fund may protect your finances and help you avoid debt. If you’re ready to get started, the steps below can help you build your rainy day fund quickly.

1. Review your last 90 days of spending. Look for spending patterns you might be able to improve or eliminate, such as subscriptions you don’t use, rising grocery costs, or frequent small purchases that drain your budget. Financial awareness can help you find savings opportunities.

2. Set a short-term goal. A clear number can help keep you motivated if you want to build a rainy day savings fund before year-end. Consider aiming for $300 to $500 by December 31. (It’s also fine to adjust that number up or down depending on your financial situation.)

3. Cut one cost temporarily. Consider dropping or reducing one expense for 30 days, such as a streaming service or ordering takeout. Then move that money to savings. A short-term sacrifice could help you build momentum and reduce financial stress.

4. Try a short-term savings challenge. Gamifying your savings can help you stay motivated through the end of the year. Try a savings challenge, such as the $5 bill challenge or the $1,000 savings challenge, to make saving more fun.

The right number varies by household because every financial situation is different. But a good rainy day buffer often ranges from $500 to $1,000.

A full emergency fund, by comparison, should contain at least six months’ worth of expenses. And some financial experts recommend stashing away up to 12 months of savings if your income is unpredictable or fluctuates month to month.

Read more: How much money should I have in an emergency savings account?

Of course, building a larger savings fund takes time. So, starting with a smaller rainy day savings goal first could make sense if you’re just beginning your savings journey. Even $1,000 in savings could make a meaningful difference in your financial well-being if you put your money to work wisely.