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Long overdue, but I am finally able to really start building up an emergency fund (and retirement fund) and I was trying to figure out the best way to do this. I know emergency funds aren't really meant to be money makers, but at the same time I don't really want to miss out extra interest if I can get it, so I was thinking of doing the following:
Start by making monthly deposits into my savings account (0.10% APY)
Once I have $3,000 set aside, I'd open up a 3 month CD (0.36% APY) with $1000, then one month later open a second one, and one month later open up a 3rd.
I would continue opening a 3 month CD each month, and when the CDs matured, I'd double their maturity length. So, on month 4 I'd create a new 3 month CD, and the matured CD would become a 6 month CD.
Assuming an emergency fund of around $36,000, I could have 12 $3,000, 1 year CDs with a maturity date each month and an interest rate of 0.71% compared to the 0.10% of standard savings. This way, I figure my emergency fund can be fairly liquid since a CD matures each month.
One risk I see is that if I have 6 months worth of expenses spread across 12 months worth of CDs, if the worst should come to pass I'd only get half a month worth of my expenses covered when the CD matures, but since we are a 2 income family, I'm hedging that bet against the odds that we would both lose our jobs at the same time. As long as one of us is still working, that person's income can offset the difference between expenses and the CDs funds.
I also plan on having other accounts available (brokerage (semi-liquid) and Roth IRA (not liquid) for retirement, and a savings account for vacations) which I'd be able to leverage in a worst-case scenario.
Long story short, is staggering CDs like I am considering even remotely worth it? I am starting saving with pretty much nothing set aside at all aside from a few thousand in a brokerage account, but I'm estimating being able to put aside around $1,500-$2,000 each month across emergency funds, Roth IRA, and a vacation account.
This seems very complicated when you could just open a high-interest savings account with an internet-only bank. Capital One 360 (formerly ING Direct) has an Orange savings account with a 0.75% APY return and you would have access to all of your funds at all times. It can be linked to your physical checking account (deposits and withdrawals done electronically through ACH transactions) or you could even move your checking account to an internet bank like Capital One 360.
We've used a internet-only bank for >10 years and have never looked back. We can still write physical checks, have ATM access, and can make deposits with our smartphone.
This seems very complicated when you could just open a high-interest savings account with an internet-only bank. Capital One 360 (formerly ING Direct) has an Orange savings account with a 0.75% APY return and you would have access to all of your funds at all times. It can be linked to your physical checking account (deposits and withdrawals done electronically through ACH transactions) or you could even move your checking account to an internet bank like Capital One 360.
We've used a internet-only bank for >10 years and have never looked back. We can still write physical checks, have ATM access, and can make deposits with our smartphone.
I second the high yield savings. American Express savings is at 85 bps, citbank 90-95bps
I'd be using USAA (which would also give me a discount on my home owners and auto insurance) but those rates are really tempting. I've had bad experiences in the past with Capital One, so I probably wouldn't use them, but it looks like Synchrony Bank has an even more impressive 0.96% rate. Better interest rate and more liquid access, and I can setup my vacation fund in USAA to still get the insurance discount.
Why not just start putting the money into the 1 year CDs at the highest interest rate and be done with it? Are the shorter term CD really that much more than savings to make the laddering/staggering worth the time? You mentioned working full time/2 income household, time must be at a premium...
Why not just start putting the money into the 1 year CDs at the highest interest rate and be done with it? Are the shorter term CD really that much more than savings to make the laddering/staggering worth the time? You mentioned working full time/2 income household, time must be at a premium...
Since it was an emergency fund I wanted more liquid access. Depositing the money into a 12 month CD up front would mean I couldn't access it (at least not penalty free) for a year.
Since it was an emergency fund I wanted more liquid access. Depositing the money into a 12 month CD up front would mean I couldn't access it (at least not penalty free) for a year.
The penalty is so low it is pretty much a non-factor.
Since it was an emergency fund I wanted more liquid access. Depositing the money into a 12 month CD up front would mean I couldn't access it (at least not penalty free) for a year.
If you want liquid, keep it liquid. If you want to invest, invest. Where CDs are right now for rates, they do neither well.
Seems to be the natural choice is an online money market account at .75-.85% (Ally). I don't know why you'd bother wrangling CDs when this option is available.
I'd be using USAA (which would also give me a discount on my home owners and auto insurance) but those rates are really tempting. I've had bad experiences in the past with Capital One, so I probably wouldn't use them, but it looks like Synchrony Bank has an even more impressive 0.96% rate. Better interest rate and more liquid access, and I can setup my vacation fund in USAA to still get the insurance discount.
Thats exactly what I would do in your situation. Keep accounts in multiple places to take advantage of other discounts. Your primary savings account does not need to be with USAA. This is what we do--we have a brick-and-mortar checking account (for discounts on our safety deposit box and discounts on closing costs when we refinanced) and keep the majority of our liquid cash in an internet-only bank. When we do need to transfer money from the internet-only option, it shows up in our checking account within 48 hours.
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