Savings for different purposes - the emergency fund

The next category of savings I'm looking at is the emergency fund.  Unlike the annual bills fund, this money is intended not to be spent, all being well, but instead to serve as a back-up fund for use if you lose your job, become ill, the roof falls in, or a similar emergency arises.

I would suggest putting your emergency fund in an account with the best interest rates you can manage, while still keeping the money accessible on either no, or very little, notice indeed.  (You may be confident enough to rely on credit cards or overdraft facilities to tide you over until you can access your fund, but I'd strongly suggest not tying up the fund for too long.) If you are a taxpayer then it is definitely worthwhile making use of your cash ISA allowance for this purpose.  Alternatively, if you have an offset facility on your mortgage, you can use that, as I do.

In terms of the amount, the sum of six to eight months' living expenses is often recommended by experts. Depending on your income and other commitments, that may be an ambitious target, but is I think a good one to aim for.