Put EF in CD

[skives]

Would you put your EF in a 5 year cd? I have a 25k EF and can get 4.25% cd at American Express. Currently we save around $900 a month so we would have money saved each month.

[disneysteve]

Worst thing that happens is you have to cash out early and lose some interest.

Don’t buy one CD for the whole 25K though. Buy five CDs for 5K each. Same interest earned but if you do need some cash you will only have to close out one or two rather than all.

[skives]

So if the penalty for early withdrawal is 540 days of interest and I withdrawal it 6 months into the cd do they still take 540 days of interest or just what I’ve made so far?

[disneysteve]

So if the penalty for early withdrawal is 540 days of interest and I withdrawal it 6 months into the cd do they still take 540 days of interest or just what I’ve made so far?

They won't withhold more interest than you've earned.

That's a pretty steep penalty, though. In that case, you might even want to split it into smaller pieces. Heck, you could buy 25 $1,000 CDs if you'd like.

[LivingAlmostLarge]

No idea but why not do $5k like DS recommended and build a ladder of 1, 2, 3, 4, 5 years?

[Petunia 100]

Would you put your EF in a 5 year cd? I have a 25k EF and can get 4.25% cd at American Express. Currently we save around $900 a month so we would have money saved each month.

No, I wouldn't. That's not much more than you can get in a regular savings account at an online bank and rates are rising.

You might consider moving only part of it.

[myrdale]

I don't understand the point of having 6 months of expenses saved up if you can't touch the money for 5 years. If you lost your job or wrecked your car, the money isn't going to do you any good if you can't access it.

[disneysteve]

No idea but why not do $5k like DS recommended and build a ladder of 1, 2, 3, 4, 5 years?

That's an option, too, though the rates won't be quite a high. Of course, the goal with your EF is not to make the most interest but to have a safe, secure, liquid stash of funds in case the roof blows off or your car gets wrecked or you encounter a big medical bill.

[disneysteve]

I don't understand the point of having 6 months of expenses saved up if you can't touch the money for 5 years. If you lost your job or wrecked your car, the money isn't going to do you any good if you can't access it.

You can always cash out a CD early. You lose some interest though, which is why I suggested breaking up the money into smaller pieces.

[disneysteve]

No, I wouldn't. That's not much more than you can get in a regular savings account at an online bank and rates are rising.

Long term rates seem to have already peaked and come down again. The yield curve is very inverted so 1-yr CDs are now paying as much or more than 3, 4, or 5-yr CDs. Either that or the longer term ones are callable because the expectation is that today's rates aren't going to last.

[kork13]

I personally would not...it's locked up for too long, and the penalty is pretty stiff.

That said... I do use I-Bonds for 80% of my EF (untouchable for 1 yr, small 3-mo interest penalty for withdrawal before 5 yrs), just to ensure that the EF keeps up with inflation. They're also able to be redeemed in any amount above $25, so if life went sideways, I wouldn't have to cash out a $10k I-Bond to access just a few thousand dollars.

[Petunia 100]

Long term rates seem to have already peaked and come down again. The yield curve is very inverted so 1-yr CDs are now paying as much or more than 3, 4, or 5-yr CDs. Either that or the longer term ones are callable because the expectation is that today's rates aren't going to last.

Interesting, thank you.

[bjl584]

I probably wouldn't for the simple fact that an EF is for emergencies and needs to be readily available without penalty or fees.
Maybe $25K is too much of an emergency fund?
Could you cut it in half and put the difference in a CD?

I'd save CD's for additional money above and beyond your emergency fund.

[Drake3287]

Try to find a Bank like Ally or a few others with smaller penalties, 180 days of interest is about as good as you're going to get on a 60 month CD. And by the way, Ally and most likely Capital One will probably be bumping up their rates here pretty soon. Ally's just waiting for their current $500. bonus period to end. They'll be upping the rates so they don't lose these newer deposits. And what Ally does, Capital One follows within a day or so.

[skives]

I know no one knows the future but how long do you think we will be able to get 5 year cd rates like 4.40%? I got an offer from Chase to open a checking and savings account for a $900 bonus. Just have to put $15k in for 90 days. Would you do that or just put money in a cd now?