Could You Cover a $400 Surprise? Building an Emergency Fund

The $400 question

Every year the Federal Reserve asks thousands of adults the same question in its Survey of Household Economics and Decisionmaking (SHED): if you faced an unexpected $400 expense today, how would you pay for it?

In the latest report, published May 13, 2026, 63% of adults said they would cover it with cash, savings or a credit card paid off at the next statement. That share was unchanged from the previous three years and below the 68% high reached in 2021. Put the other way, more than a third of adults would need to borrow, sell something or go without.

The survey also found that 73% of adults were “doing okay or living comfortably financially,” in line with 2024 but below the 78% high in 2021. For lower-income households the picture is tighter: four in 10 adults earning under $50,000 said they couldn’t cover even a $100 emergency using only their savings.

Surprise bills are common

Unexpected costs aren’t rare events. In the same survey, 59% of adults had at least one major unexpected expense in the previous 12 months. The most common were:

Source: Federal Reserve, Economic Well-Being of U.S. Households in 2025.

In other words, the question isn’t whether a $400 surprise will happen, but when.

What it costs to borrow $400

If you don’t have the cash, the way you cover the gap makes a big difference. Here is what a $400 expense costs under three common options, assuming payments are made on time:

Card rate is the Federal Reserve’s August 2026 average for accounts charged interest. Payday fee example from the CFPB. Calculations by Riverstone.

A card you can pay down quickly is usually the cheapest borrowed option for a small bill. A fixed installment loan gives you a set payment and payoff date, which some people find easier to stick to. Either beats a payday loan by a wide margin.

How big should your emergency fund be?

There’s no single right number, but a staged goal is easier to reach than a big one. Start with what the Fed’s survey uses as its benchmark, $400, then build toward one month of essential spending, then three months.

Here’s a worked example. Say your essentials, such as rent, utilities, groceries, insurance, transportation and minimum debt payments, add up to $2,500 a month:

The three-month goal can look far away. That’s fine. Most surprise bills in the Fed’s survey were repairs and medical costs, and a starter fund handles many of those on its own.

Where to keep it

An emergency fund needs to be safe and easy to reach, not invested for growth. A savings account at a federally insured bank or credit union fits both needs. Deposits are insured up to $250,000 per depositor, per insured institution, for each account ownership category, by the FDIC at banks and by the NCUA at federally insured credit unions.

• Separate from checking, so the money doesn’t get spent by accident.
• Linked for quick transfers, so you can move money the day a bill arrives.
• Free of monthly fees that would slowly eat a small balance.

How to build a $400 cushion

A starter emergency fund doesn’t need to be large to help. Covering the first $400 of a surprise removes the need to borrow for many common repairs.

1. Automate it. Set a small automatic transfer on payday to a separate savings account, so the money moves before you can spend it.
2. Keep it separate but reachable. A savings account at the same bank lets you move money quickly when a bill hits, without mixing it with spending money.
3. Route windfalls to it. Tax refunds, rebates and cash gifts can fill the fund much faster than weekly savings alone.
4. Trim one recurring cost. Canceling a single unused subscription can fund a weekly transfer.
5. Refill after you use it. Treat the fund as a revolving cushion. After a repair, restart the transfers until it’s back to target.

If you’re short right now

If an expense lands before your fund is ready, try the cheapest options first:

• Ask for a payment plan. Many repair shops, hospitals and utilities offer installment plans, sometimes interest-free.
• Check a credit union. Federal credit unions can offer payday alternative loans with APRs capped at 28%. See credit unions vs. banks.
• Compare small installment loans. Through Riverstone you can request $200–$5,000 and compare APR, fees and terms from lenders in our network. Use our calculators to check the payment first.
• Avoid payday loans and advance-fee offers. Read our loan scam guide for warning signs.

Frequently asked questions