Most people don’t think of finding great CD rates when they are saving money for an emergency fund. In fact, CD rates usually apply to people who are looking to stow away some disposable income. However, a good CD laddering strategy can actually help you keep emergency funds safe and readily available.
An Optimal Solution: Growth and Safety
Many people don’t want to put their emergency funds in CDs because they’re afraid they won’t have easy access to their money. However, building a CD ladder gives you easy access to your funds AND increases your assets with strong interest rates.
Basically, when you buy a CD laddering, you are purchasing several CDs at regular intervals so that they will mature at regular intervals. So, let’s assume that an investor wants to create a CD ladder from nine month CDs. That investor would then buy one CD every month for nine months. Once nine months elapse, the first CD bought would mature, and the investor gets a good return on the money.
Then, the investor can buy a new Certificate of Deposit for the original amount and keep the interest. Or, the investor can keep the principal and the return. Finally, the investor can buy a new CD for the compounded return.
Collecting Your Funds Every Month
Each month after that, another CD will mature, meaning money will return to the investor. If you are using your emergency fund for the CD ladder, this means every month you’ll have instant access to a month’s worth of your emergency fund.
A New Plan: CD Laddering
It’s a much wiser idea to put your emergency fund in CD ladders than in savings accounts. CDs offer interest rates that are one to two percent higher than the yields offered on savings accounts. So, always choose CD ladders over savings accounts when you’re dealing with emergency funds for you and your family.