When you start creating an emergency fund, your biggest worry is usually whether or not you’ll be able to save up enough money to get you through an emergency before one strikes. If you save consistently, though, you’ll be surprised at how quickly you accumulate enough money to get you through most financial emergencies. Eventually, you’ll even have the recommended six months of salary saved that most financial experts recommend.

You won’t want to keep all that money in a traditional savings account, though. You’ll want to look into other accounts to keep the money you have saved, and one of the best places to keep at least part of your emergency fund is in a certificate of deposit, or CD for short.

What are the benefits of keeping your emergency fund in short term CDs?

CDs Have a Higher Interest Rate

The biggest advantage that a certificate of deposit has over a traditional savings account is the higher interest rate. When you put part of your emergency fund in a CD, you’ll get more money back each month. While this won’t make you rich, it will grow your insurance fund faster than you would if you kept it in a traditional savings account.

Open a CD at First Alliance Credit Union today!

CDs are a More Stable Investment

CDs are also more stable than other types of investments, like mutual funds or individual stocks. Once you invest a CD, you can rest assured you will be getting the same interest rate for your money until the CD matures. It’s also worth noting that thanks to the NCUA, up to $250,000 in a CD is protected even if the credit union fails.

All of this makes CDs a very attractive option for people who have a robust emergency fund. You get the benefits of a better interest rate than you’d get with a traditional savings account without any of the risks that come from investing in stocks or mutual funds.

CDs Help you Avoid Temptation

For most people, the fact that you can’t access the money in a CD until it matures is a huge disadvantage. However, it’s also a huge advantage since it protects you from using that money to make an impulse buy.

Even better, the fact that you can’t access the money in your CD without paying a fee will make you a more conscientious investor. Each time you open a CD with funds from your emergency account, you’ll have to consider how much of your emergency fund you’re comfortable keeping in a CD and for how long you want the CD to run. This will be a huge benefit to you in every other aspect of your finances.

Make Your Emergency Fund Work Harder With a CD Ladder

Of course, there’s nothing that says you only get to invest your emergency fund in one CD. You can open multiple CDs that mature at different dates to take advantage of the higher interest rates that long-term CDs offer while still making sure you can easily access your money if you need it. This strategy is known as a CD ladder.

There’s no one right way to set up a CD ladder strategy. You’ll have to consider:

• How much of your emergency fund you want to invest
• The number of CDs you can afford to open 
• How long you want to wait between each CD maturing

Got questions about opening a CD? Ask us!

Grow Your Emergency Fund With First Alliance Credit Union

Once you’ve built up your emergency fund to the point where you have a few thousand dollars in it, you might want to think about investing part of it in a CD. You’ll get a higher interest rate than you would with a traditional savings account, a stable investment, and a way to protect your emergency fund from impulse spending. You can even set up a CD ladder to maximize your interest rate while still keeping your money regularly accessible.

If you’d like to see how a CD can benefit your emergency fund, become a member of First Alliance Credit Union and talk with a member advisor. They’ll help you figure out how to best use CDs to grow your emergency fund, as well as other types of savings accounts that might be beneficial, such as money market accounts and WINcentive savings accounts.