A sudden job loss, unexpected vet visits, or even an impromptu car servicing—life is full of unexpected expenses. Yet, many Americans find themselves financially underprepared for emergencies. According to Vestwell’s Savings Trends Report, 38% of employees report having less than $1,000 set aside for emergencies, while 29% indicated they have no emergency savings at all.

Given the urgent need for emergency savings tools, Emergency Savings Accounts (ESAs) are gaining popularity as a workplace benefit. Not only can they help recruit and retain talent, but offering an ESA can signal an employer’s commitment to financial wellness for their workforce. This article will provide employers with an overview of emergency savings programs and highlight their value as part of a workplace benefits package.

The Need for Emergency Savings

Historically, many employees have resorted to hardship withdrawals or loans from their retirement accounts to cover immediate financial needs, such as medical expenses or urgent home repairs. However, these early withdrawals and loans from retirement accounts—even if they are covering a qualifying “hardship”—may trigger costs and penalties and can impact long-term financial goals.

The increasing reliance on retirement accounts for emergencies has highlighted a clear need for readily available funds that won’t compromise retirement savings or incur financial consequences. ESAs aim to address short-term financial needs by offering a dedicated account to build and access emergency savings without penalties.

What Is an Out of Plan Emergency Savings Account (ESA)?

An ESA is a dedicated financial fund designed to help individuals save for unexpected emergencies. By maintaining an ESA, individuals can handle unexpected situations without resorting to high-interest loans, long-lasting debt, or even dipping into their retirement savings.

What Can ESA Funds Be Used For?

While there are no restrictions or criteria for how emergency funds are used, the goal of an ESA is to set aside money for unforeseen expenses, such as medical emergencies, urgent home repairs, or sudden job loss. Certain ESAs may have limits on how often funds can be withdrawn to encourage healthy savings habits and help build a balance.

Emergency Savings Accounts As a Workplace Benefit

As a workplace benefit, ESAs can show a lasting commitment to financial wellness for your workforce. They provide employees with the much-needed opportunity to build a meaningful financial safety net for emergency expenses. At a time when many Americans lack sufficient emergency funds, this company benefit makes reaching financial security more attainable.

How Do Employer-Sponsored ESAs Work?

Workplace emergency savings programs can function in many ways—some have options to add funds via an external bank account and others give savers the ability to contribute via automatic payroll deductions. ESA programs often invest funds in an FDIC-insured savings account that earns interest or other types of liquid investment accounts such as a money market fund. Certain programs even allow employers to offer savings incentives and make contributions towards employee ESAs to encourage saving.

There are many possibilities when it comes to emergency savings accounts in the workplace. An ESA program can be tailored to match the needs of each business and their employees. Ultimately, all emergency savings programs are designed to allow employees quick and easy access to their funds in times of need.

How Does Offering an ESA Benefit Employers?

Offering an emergency savings account as part of a workplace benefits package can significantly enhance a company’s ability to acquire and retain top talent in the job market. In fact, the Vestwell Savings Industry Report reveals that 50% of surveyed employees agree that the availability of an emergency savings account would increase their likelihood of remaining with their current employer. Businesses have the opportunity to support employees’ short-term financial needs while also enhancing their strategies for recruiting and retaining top talent in a competitive job market.

Moreover, these accounts provide employees with the means to accrue a dedicated fund that may cover unexpected expenses, ultimately reducing financial stress and allowing them to focus more on their work. Vestwell research reveals that 76% of employees are stressed about their finances. Among those, over 48% say it has impacted their mental health, 33% note their sleep has suffered, and 11% indicate their work performance has been adversely affected.

With a way to prepare for emergencies at work, employees can feel more equipped for the unexpected, lowering their financial stress and ultimately improving their overall morale and productivity.

Next Steps for Employers

If you’re interested in expanding your workplace benefits package to include an emergency savings account, Vestwell can help you get your program in motion.

Vestwell is a modern savings platform with a comprehensive suite of solutions across retirement, health, education, and emergency savings. We can help you design, implement, and manage an emergency savings program that meets the unique needs of your business and employees. Our seamless technology and robust service offering make it easy to offer an impactful benefit to your workforce.

With the recent shift towards more inclusive and holistic financial workplace benefits, there’s an effort to expand savings opportunities for workers’ short and long-term needs. Adding an emergency savings account to a workplace benefits package gives businesses a prime opportunity to support these efforts while simultaneously investing in the financial well-being of their employees—ultimately fostering a more engaged and loyal workforce.