E-fund in a CD

kmurphy2131 · October 2015

Do you keep your e-fund in a regular savings account or a CD? We currently have our e-fund ($30,000) in a .75% interest account through capital one 360. We can get 1.6% interest on a 3 year CD, 1.78% on a 4 year CD, and 2.1% on a 5 year CD. I am tempted to put $15,000 in a 3 or 4 year CD but feel nervous about tying up funds.

We rent so we don't have to worry about emergency home repairs, but we will probably buy in 1-2 years. None of this would be down payment money, but I could see needing to use some e-fund money if anything crazy comes up in the home buying process.

We have no kids, and have good health insurance with a low OOP max so I don't worry about that too much. We do have a dog and between her and us I would never tie up all our funds in a CD.

The penalty if we had to withdraw would be 6 months of interest.

WWMMD? Would you get at CD? How many years? How much would you put in it?

vlagrl29 · October 2015

nah I wouldn't put it in a CD…..better to put in a higher interest savings or money market.

kmurphy2131 · October 2015

vlagrl29 said:

nah I wouldn't put it in a CD…..better to put in a higher interest savings or money market.

Have you seen savings accounts that have higher interest than .75%?!? That was the best I found by far a few months ago but maybe it has changed.

AprilZ81 · October 2015

Ours is in a mutual fund. Better rate of return (normally) than a savings account but we have almost instant access to the funds.

Keeping some in a CD wouldn't be an issue, but if this is your e-fund I wouldn't keep it all in a CD, especially one for 10-15 years. I wouldn't want to pay the penalty because it would feel like you were being "punished" twice. Once for having to use the e-fund and again for pulling it out of a CD.

kmurphy2131 · October 2015

AprilZ81 said:

Ours is in a mutual fund. Better rate of return (normally) than a savings account but we have almost instant access to the funds.

Keeping some in a CD wouldn't be an issue, but if this is your e-fund I wouldn't keep it all in a CD, especially one for 10-15 years. I wouldn't want to pay the penalty because it would feel like you were being "punished" twice. Once for having to use the e-fund and again for pulling it out of a CD.

is there risk to having it in the mutual fund?

I wouldn't put it in for 10-15 years, I have never even seen a CD for that long. The interest rates I listed above were for 3-5 years.

MrsAshleyH10 · October 2015

I have a majority of ours in a Discover Bank savings account. It's all online, so it will take a few days to get the money, but it pays .95%, which is higher than anything else I've seen.

Xstatic3333 · October 2015

When I was in grad school and kept a huge e-fund, I had about half of it in a CD. That was mainly, however, to keep it safe from myself! I do think, however, that plenty of online savings accounts are giving interest of .75% or slightly above. Our e-fund with Capital One gets right around that, and I've found it an easy bank to use. You can deposit checks right into it on the mobile app, and since the money would take 5 business days to transfer we aren't tempted to spend it.

(H and I are both naturally spendy and constantly fighting that impulse. You may not have that problem.)

vlagrl29 · October 2015

kmurphy2131 said:

vlagrl29 said:

nah I wouldn't put it in a CD…..better to put in a higher interest savings or money market.

Have you seen savings accounts that have higher interest than .75%?!? That was the best I found by far a few months ago but maybe it has changed.

at community america ours is 4% up to $1500 and then 1% on the rest. Plus you get cash back at the end of the year.

kmurphy2131 · October 2015

Xstatic3333 said:

When I was in grad school and kept a huge e-fund, I had about half of it in a CD. That was mainly, however, to keep it safe from myself! I do think, however, that plenty of online savings accounts are giving interest of .75% or slightly above. Our e-fund with Capital One gets right around that, and I've found it an easy bank to use. You can deposit checks right into it on the mobile app, and since the money would take 5 business days to transfer we aren't tempted to spend it.

(H and I are both naturally spendy and constantly fighting that impulse. You may not have that problem.)

We have capital one too - they are great. I wouldnt say we are naturally spendy but I do think that having the lag time to getting our money does help keep me on budget since we cant just shuffle it easily.

kmurphy2131 · October 2015

vlagrl29 said:

kmurphy2131 said:

vlagrl29 said:

nah I wouldn't put it in a CD…..better to put in a higher interest savings or money market.

Have you seen savings accounts that have higher interest than .75%?!? That was the best I found by far a few months ago but maybe it has changed.

at community america ours is 4% up to $1500 and then 1% on the rest. Plus you get cash back at the end of the year.

wow that is a great deal. Does the interest go significantly lower after the $1500 though? My dad is president of a credit union and didn't even push me to use it when he realized what we were getting through online savings - most credit unions around here are .2% or so.

BlueBirdMB · October 2015

I've made some great money in CDs in years past, but now... the rates just aren't worth tying up money to me. I wish they were! I made some great money in high school actually with a CD that helped to pay for college. I look at CD rates on a regular basis, but nothing good.

If anyone has tips on a high yield savings accounts, I'd be interested also.

dragonstarjk · October 2015

We actually do have ours in a 5-year CD at 2.1%. Our long-term goal is to build a CD ladder, so we will have one maturing each year and it makes it feel less tied up. We would have had our second one this year, but since our bank was offering this rate for a short time only, we decided to put our first CD and some new funds all into one CD with this rate. One of the reasons for putting it in a CD is because it makes it easier for us to leave it for a true emergency.

als1982 · October 2015

Are your monthly expenses $5,000 a month? If so, I'd find a savings account with the highest interest rate you can find and stick it there (no CDs). Otherwise, if it's not what you're planning on using for a down payment, I'd take six months of your actual bare bones expenses put that in savings and then invest the rest.

vlagrl29 · October 2015

kmurphy2131 said:

vlagrl29 said:

kmurphy2131 said:

vlagrl29 said:

nah I wouldn't put it in a CD…..better to put in a higher interest savings or money market.

Have you seen savings accounts that have higher interest than .75%?!? That was the best I found by far a few months ago but maybe it has changed.

at community america ours is 4% up to $1500 and then 1% on the rest. Plus you get cash back at the end of the year.

wow that is a great deal. Does the interest go significantly lower after the $1500 though? My dad is president of a credit union and didn't even push me to use it when he realized what we were getting through online savings - most credit unions around here are .2% or so.

lets just say its WAY better than what we got at our old bank Commerce. It was something stupid like .03% interest even with their CDs. I was done with banks - give me a credit union any day.

AprilZ81 · October 2015

kmurphy2131 said:

AprilZ81 said:

Ours is in a mutual fund. Better rate of return (normally) than a savings account but we have almost instant access to the funds.

Keeping some in a CD wouldn't be an issue, but if this is your e-fund I wouldn't keep it all in a CD, especially one for 10-15 years. I wouldn't want to pay the penalty because it would feel like you were being "punished" twice. Once for having to use the e-fund and again for pulling it out of a CD.

is there risk to having it in the mutual fund?

I wouldn't put it in for 10-15 years, I have never even seen a CD for that long. The interest rates I listed above were for 3-5 years.

There is some risk because a mutual fund is just a bunch of stocks that are diversified. If the stock market tanks you will lose some money if you had to withdraw from the account while it is low, but as long as you don't touch it the loss is "on paper" like your 401(k).

I think a money market account is really low risk overall and you can write checks straight from the account (like a savings account).

lbonga1 · October 2015

I have an American Express personal savings account that gets 0.9% interest, and my FI has a savings account at a credit union that gets 1%. I think anything around that range is pretty common.

hoffse · October 2015

I have a high interest checking account up to 2.5% right now. It stays that rate up to $15K. H has one too so between us we could (in theory) shelter 30K at 2.5%. You just have to do some googling to find them.

However, I also agree that anything more than 6 months I would be investing. And in your situation I might actually invest anything more than 3 months since you rent and don't plan to own for at least 1 more year, unless you have a peculiar job situation that requires you to keep more in cash. Do you guys really spend $5K/month as a bare bones budget? H and I do, but that number encompasses our student loan debt and mortgage. If you guys wouldn't spend that much bare bones, then I don't see why you still have a stash that big in cash.

Rates on money market accounts and CDs WILL go up again - it's going to happen eventually and probably sooner rather than later. There was a lot of grumbling when the Fed didn't do it in September. A lot of folks seem to think it's going to happen next year. The recent market mess has spooked some people, but it seems to be more a correction (which really needed to happen to reflect actual company performances), rather than a true downturn a la 2008. I think there is still some volatility left, but after it stabilizes I think the Fed will finally pull the trigger and start to raise rates. My point is I absolutely would not be tying up money in a 3 or 5 year CD right now because from a historical standpoint, they are all paying peanuts and don't even keep up with inflation. The Fed has held this rate since 2008, and I don't see that lasting another 3-5 years.

jtmh2012 · October 2015

We have a bunch of money at Barclay's. It is currently getting 1%. We've got some one-off CDs at 3% and 5%, but those were special anniversary/celebration CDs offered by our credit union.

Beyond that, I think interest rates will go back up soon enough that I'm not putting anything into CDs for longer than a year. Maybe 2 if the rate is good enough and I'm not seeing good enough rates to make me want to do longer than a year.

Some people get CDs with the idea of breaking them early if the rates jump. Depending on the terms, that could work out.

I know the interest rates suck, but I don't think I'd want my emergency fund in the market unless you have a substantial one. With the way my luck runs, I'd need the funds during a downturn and my money would be gone. I do have mine split though. I have a good sized cushion in an online bank savings account and accounts earmarked for other purposes in the market that if I absolutely needed them would become emergency savings.

Erikan73 · October 2015

I keep mine in a CD, I'll be honest, it's not nearly what it should be and it's one that I had started when I was single and just renting an apartment. I keep at a 6 month term. That way the fee for early withdrawal isn't as bad. For me it made it easier because it's money I can't touch with my debit card or go to the bank withdraw.

cbee817 · October 2015

We have $30,000 split between 5 CDs - year 1-5 so they get different interest rates that range from 1.15% - 2.6%. We also have about $20,000 in a regular savings account and $7,500 in a vacation savings account if we needed to pull from there. I made the CD ladder mostly because we already fully fund 2 ROTH IRA accounts, I put 11% into my 401K, DH puts 5% into a 403B, we have 2 pensions, and the girls' 529 plans are on monthly auto withdrawl. The $30,000 would be if there was longer term job loss and we needed the $ to pay the mortgage/bills. I tend to over fund my emergency account but I would rather be safe than sorry with 2 kids.

kmurphy2131 · October 2015

hoffse said:

I have a high interest checking account up to 2.5% right now. It stays that rate up to $15K. H has one too so between us we could (in theory) shelter 30K at 2.5%. You just have to do some googling to find them.

However, I also agree that anything more than 6 months I would be investing. And in your situation I might actually invest anything more than 3 months since you rent and don't plan to own for at least 1 more year, unless you have a peculiar job situation that requires you to keep more in cash. Do you guys really spend $5K/month as a bare bones budget? H and I do, but that number encompasses our student loan debt and mortgage. If you guys wouldn't spend that much bare bones, then I don't see why you still have a stash that big in cash.

Rates on money market accounts and CDs WILL go up again - it's going to happen eventually and probably sooner rather than later. There was a lot of grumbling when the Fed didn't do it in September. A lot of folks seem to think it's going to happen next year. The recent market mess has spooked some people, but it seems to be more a correction (which really needed to happen to reflect actual company performances), rather than a true downturn a la 2008. I think there is still some volatility left, but after it stabilizes I think the Fed will finally pull the trigger and start to raise rates. My point is I absolutely would not be tying up money in a 3 or 5 year CD right now because from a historical standpoint, they are all paying peanuts and don't even keep up with inflation. The Fed has held this rate since 2008, and I don't see that lasting another 3-5 years.

Yes, we do have a $5000 bare-bones budget. That would include continuing to fund retirement and pay student loans. Or cutting those and being able to continue to spend the fun money that we do (not that that would be a good idea, but basically the 5,000 is possible to do easily). We live in a really HCOL area.

That said, if one of us lost our job we also could move out of out apartment and stay with family to really save money. That was making me lean towards investing 3 months of the e-fund. We have pretty stable jobs, but I am super paranoid after my dad very suddenly & unexpectedly lost his job (honestly most people thought he was joking when he lost his job).

I hadn't even thought about how the rates would probably go up next year, I would be so disappointed if I tied up my money at a low rate.

Thanks to everyone for your advice! I think I am going to look to make sure we have the best savings account deal, and leave it be for now.

brij2006 · October 2015

I wouldn't keep it in a CD. You want it easily and quickly accessible for an emergency.

I would keep it in a money market that has check writing abilities. Keeps it at a higher rate of return then a savings account, but also easy access as well.

csuave · October 2015

I put some of our e-fund into a CD last year that will come up in February 2016. It is earning over 1%. It is at the bank where we have our savings and checking accounts and like that I can log in one place and see our total balance for the 3 accounts.

When H lost his job we had a healthy EF built up that we are now maintaining. I put part into the CD because like PP it is there for worst case scenario where I lose my job; we wouldn't have to tap into it right away in that scenario because the other portion of the EF is in savings.

When H gets a new job I will reconfigure things to be less conservative and get a higher overall savings rate.

short+sassy · October 2015

AprilZ81 said:

kmurphy2131 said:

AprilZ81 said:

Ours is in a mutual fund. Better rate of return (normally) than a savings account but we have almost instant access to the funds.

Keeping some in a CD wouldn't be an issue, but if this is your e-fund I wouldn't keep it all in a CD, especially one for 10-15 years. I wouldn't want to pay the penalty because it would feel like you were being "punished" twice. Once for having to use the e-fund and again for pulling it out of a CD.

is there risk to having it in the mutual fund?

I wouldn't put it in for 10-15 years, I have never even seen a CD for that long. The interest rates I listed above were for 3-5 years.

There is some risk because a mutual fund is just a bunch of stocks that are diversified. If the stock market tanks you will lose some money if you had to withdraw from the account while it is low, but as long as you don't touch it the loss is "on paper" like your 401(k).

I think a money market account is really low risk overall and you can write checks straight from the account (like a savings account).

Since you are planning to leave it in a savings account anyway, and will be shopping around for rates, shop around for money market rates instead. It is basically a savings account, FDIC-insured, that pays a slightly higher interest rate than a regular savings because it requires a balance of $2500-$5000 (depending on bank). And, like @AprilZ81 posted, you can also write a limited number of checks a month out of it.

E-fund in a CD

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