Certificates of Deposit (CDs): Emergency Funds as a Backup

How You Can Strengthen Your Financial Security.

September 2012

Although it's possible to use certificates of deposit (CDs) as a place to park your emergency fund, it's important to remember that most CDs come with an early withdrawal penalty. The higher interest rate you earn with a CD could easily disappear if you need to access the cash before the CD is mature.

On the other hand, CDs earn a great interest rate, so is it possible to get the advantages of a CD for your emergency fund without risking the expense of an early withdrawal penalty?

Ally has a great solution for this very dilemma: the No Penalty CD. With it, you earn a great rate, and you won't pay a penalty to withdraw your full balance and interest if the need arises any time after the first 6 days of funding your CD.

So, how much money should be in your emergency fund?

Many financial planners recommend having between six months to a year's worth of living expenses on hand in case of emergencies. We talked to Carl Friedrich, managing principal of Friedrich Wealth Management in Syosset, New York, to get his insight. "With unemployment flirting with 10 percent," says Friedrich, people are more uncertain about their careers than ever. "But rather than just blindly ratcheting up six months to 12—or 12 months to 24 months—let's be intelligent about it."

By that, he means you should make sure your buffer funds match the reality of the situation. One person's emergency fund needs may be different than the emergency fund of another person. Further, what constitutes an emergency to one person isn't an emergency to another, so it's important to consider all financial information in light of your own unique situation.

No matter what your plans — whether you're starting an emergency fund or saving for a specific goal — Ally has a CD product that can help you reach your goals. Why not explore your options today?

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