Friday, July 25, 2008

Breaking The Rules: Put The Emergency Fund In A CD

I know I'm not following the rules and I don't recommend that anyone else do it, but I put my emergency fund in a CD. With all the talk about bank failures and other economic uncertainties I didn't feel secure keeping my money in Paypal's Money Market fund any more. I didn't take it all out, only $7,000. I left $1,000 for any smaller emergencies.

The CD is with my credit union. 7 months at 3.2%. I remember last December when the rate was 5%. I choose to stay with Paypal back then. Now Paypal is 2.3% and it isn't secure. I know I am taking a risk and if something comes up I will have to suffer the penalties. I do have back up for my emergency find since my mortgage repayment plan isn't mandatory. I could use that $1300 I have set aside for my extra mortgage payment without any penalty. I would have a problem if I lost my job in the next 6 months and I couldn't find a renter for my house. I just have to hope that won't happen.


Anonymous said...

You aren't doing anything wrong, but I would suggest using a CD ladder instead of a single CD. I have my emergency $$ split in two 6 month CD's staggered 3 months apart, and keep enough in savings for the smaller short notice "emergencies."

Daizy said...

I thought about that but I got impatient and just put it all together. Maybe in 7 months I will be a bit more patient.