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Ready for a rainy day? Time to get a financial umbrella

More than a quarter of British families have no savings or investments to fall back on in times of emergency, according to new research from Abbey. With unemployment nearing 2.5 million and set to go higher, being one wage packet away from the breadline is a sobering thought.

"It is vital to have a contingency fund to cover the uncertainties of life. Without this, it is all too easy to fall into debt through using a credit card or running up an overdraft," says Philip Pearson from Southampton based independent financial adviser (IFA) P&P Invest.

The big question is: how much should you put aside? As a guide, experts recommend keeping at least three times your net monthly income as a cash fund, taking all mandatory expenses into account including food, mortgage or rent payments, utilities, medical bills, transportation and insurance. This is merely a guideline, however, so the amount you should put away will depend on other factors.

"Do you have one household income or two? Do you have any ill health insurance in place? Are you paying for private schooling? How big is your mortgage?" asks Jason Witcombe, from IFA Evolve Financial Planning.

Once you have a good idea of what you would need to live on for at least three months, it's time to decide where to put your money. By its very nature, a rainy-day fund must be liquid and stable enough to allow easy access.

Unfortunately, the best deposit returns on the market are offered by fixed-rate investments such as the five-year bond from Skipton Building Society, which pays 5.35 per cent on deposits of at least £500. By comparison, the top no-notice account from West Bromwich Building Society pays a far less rewarding 3.35 per cent on deposits of £100 or more and also includes a 0.6 per cent bonus until 30 December 2010.

The top branch-based savings accounts paint a similar low-rate picture. Nevertheless, these accounts can make a useful part of a rainy day-fund because you can turn up in person at a branch and use your passbook to access your money. The market leader is currently a 3.35 per cent account with West Bromwich. A regular saver can offer you a better balance between high interest and access. These have the added bonus of forcing a more disciplined approach to saving, and you can set them up using a standing order.

"Those savers looking to start a savings safety net should consider opting for a regular saver. Rates are higher than on a standard savings account as how much you can invest each month is restricted," says Michelle Slade from financial information firm Moneyfacts.

Buckinghamshire Building Society holds the top spot for regular saving with its Chiltern Gold Mine account, paying 5.1 per cent, but this does not allow withdrawals. Norwich & Peterborough Building Society pays 5 per cent and allows one withdrawal a year.

It's also a good idea to use up your tax-free ISA (Individual Savings Account) allowance. You can save up to £3,600 in a cash ISA each tax year (£5,100 for the over-50s) and from next year, that increases to £5,100. Better rates are offered on fixed-rate ISAs which generally don't allow access without incurring an interest penalty.