Where do you put your emergency fund?

I am currently putting my emergency fund into a cd ladder.
This way the money isn't easy to get to and can earn more interest than a regular savings account. Currently I have 5 months of living expenses in cds. I have them maturing every other month so if a bad month comes along I could catch up with a cd. Plus the money is harder to access so I try not to use this money. Currently the sixth month of emergency fund is in the savings account for easier access. If savings get to large than I can make a new cd. For security my husband wants to strive to have 12 months set aside in emergency fund cd ladder.

Let me tell you how to set this up
First start saving then after you get to five hundred put it in a cd maturing when you feel comfortable. For this example we are going to pick a year term. lets say it takes me two months to save five hundred dollars. So in two months I open a cd with one year term. I then name that cd my March cd, two months later I put another five hundred in a cd then name it my May cd. I than repeat the process til the end of the year or after a year. Then in March I can add another five hundred to my March cd and Keep doing this to every cd for the next year you now have a thousand dollars in each cd. keep going til you have enough money in each cd to cover a month of expenses. Then you can do the fill in months to get to a twelve month emergency fund. Having this money set aside will totally change your life. You will have learned to save and are financially prepared. I believe that if you plan for bad times you will only see good times.

Good luck!
More articles on the CD Ladder

Here is how the Simple Dollar tells it
his rates are old rates are at there lowest in August 2010

How Are You Doing It?
I started my CD ladder in September by purchasing three $1,000 CDs out of my cash emergency fund. The total was a bit less than a month’s worth of living expenses. I bought a 6 month CD that returns 3.75%, a 12 month CD that returns 4%, and an 18 month CD that returns 4.5%.

So, in September, I held these CDs:
A $1,000 CD that matures in March 2009 at 3.75%
A $1,000 CD that matures in September 2009 at 4.00%
A $1,000 CD that matures in March 2010 at 4.50%

and Frugal Dad Says his rates are closer to what we have now and is a little more doable because of the smaller amount in each one.

July Purchases ($2,000):

■$500 3-Month CD matures in October 2010 (0.75%)
■$500 6-month CD matures in January 2011 (1.15%)
■$500 9-month CD matures in April 2011 (1.15%)
■$500 12-month CD matures in July 2011 (1.50%)
August Purchases ($2,000)

■$500 3-Month CD matures in November 2010 (0.75%)
■$500 6-month CD matures in February 2011 (1.15%)
■$500 9-month CD matures in May 2011 (1.15%)
■$500 12-month CD matures in August 2011 (1.50%)
September Purchases ($2,000)

■$500 3-Month CD matures in December 2010 (0.90%)
■$500 6-month CD matures in March 2011 (1.25%)
■$500 9-month CD matures in June 2011 (1.50%)
■$500 12-month CD matures in September 2011 (1.65%)
*Note, I am using a 3-6-9-12 month maturity schedule to build a 12-month CD ladder. You could use a 6-12-18 month maturity schedule (or greater) to build an 18-month (or longer) ladder. A longer term ladder will earn higher rates, but will take longer to get going and will tie up your money for a longer period up front. It’s up to you to determine how much of your savings you can tie up, and for how long.

Beginning in October 2010, when our first 3-month CD purchase matures, I will use that original $500 (plus accumulated interest) to purchase a 12-month CD at a higher interest rate. In November, when the second 3-month CD expires, I’ll roll it into a 12-month CD purchase, and so on. In one year, I’ll have a rolling 12-month CD ladder of twelve one-year CDs.

One advantage of using these shorter terms is that when rates are rising, which I suspect they will be doing slowly over the next year or two, you can quickly take advantage of these new, higher rates without having to wait for a 6-month CD at a lower rate to expire.



Notice that the shorter-term CDs don’t return quite as well. Specific rates vary all the time, but it’s a rather constant rule of thumb that longer term CDs return better than shorter term CDs. Thus, instead of just buying a single six month CD, I decided to spread things out to get a better return on at least some of the money.

During September, I kept building our emergency fund as I usually do, putting around 10% of our income into it (which is around 15-20% of our monthly living expenses). I’ll keep doing this for the time being.

At the start of October, I bought three $1,000 CDs again out of the cash emergency fund. This left me with six CDs:
A $1,000 CD that matures in March 2009 at 3.75%
A $1,000 CD that matures in April 2009 at 3.75%
A $1,000 CD that matures in September 2009 at 4.00%
A $1,000 CD that matures in October 2009 at 4.25%
A $1,000 CD that matures in March 2010 at 4.50%
A $1,000 CD that matures in April 2010 at 4.25%

You can probably see where this is going. According to my calculations, we’ll have about four months’ worth of cash living expenses in our emergency fund in February 2009 after buying the CDs each month (remember, I’m still adding cash to my emergency fund). Each month after that, a $1,000 CD matures. I’ll then buy a single 18 month CD for $3,000, which would be enough to sustain my family for a month. And I’ll repeat that for eighteen months.

In August 2010, I’ll own eighteen 18 month CDs which will mature in one month intervals, just like clockwork. If I have my calculations correct, we should still have roughly a month’s worth of cash emergency fund at that point. So, I’ll basically have 19 months worth of emergency fund, almost all of it returning 4.25-4.5% or so.

Here’s what things will look like at that point. I’ll have a savings account with one month worth of living funds in it. Each month, an 18 month CD will mature and the proceeds will go into that account – both the principal and the interest on that CD. At the start of the next month, I’ll buy another 18 month CD worth roughly a month’s worth of living expenses. And as long as we’re able to get by just fine on our normal income, I’ll keep this cycle going, as it’ll serve as a huge emergency fund that also returns at a pretty solid rate.