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Most experts advise people to accumulate enough savings to cover their living expenses in the event of a crisis—if someone loses a job, for example, or needs medical care. These emergency accounts might be anywhere from three to six months’ worth of living expenses, and they fall into the category most planners would call short-term goals. But it’s important to consider your long-term savings tactics, too. And knowing how to balance your money between certificates of deposit (CDs) and money market accounts might be a good idea.
The Importance of an Emergency Fund
While most people realize that having an emergency fund is important, many find that it’s not always easy to do. So how do you do it? It starts with taking the first step—dedicating an account to an emergency fund, and sticking with regular deposits over time, even if they’re small. For some, it might make sense to first start putting away a relatively small amount of money—say, $500 to $1,000—and then tackle high-interest debts before continuing to contribute to their emergency funds. Whatever your strategy, savings and money market accounts make sense for emergency funds because you have the ability to make regular deposits. You also have flexible access to your money when that rainy day arrives.
Longer-term Savings Approaches With CDs
A CD ladder can be a useful strategy as part of your long-term savings approach. CD laddering diversifies your money across CDs with varying maturity dates. For example, you might put 20 percent of your funds in five different CDs, each of which would have a different term length. If you chose CDs with term lengths of 12 months, two years, three years, four years and five years, for example, once the 12-month CD matured, you could then renew it in a new five-year CD. Following this process every year would result in a CD maturing every year, allowing you to take advantage of potentially higher long-term rates. “The risk of keeping too much long-term savings in low-interest accounts is a serious detriment to conservative investors,” says Robert Laura, a personal finance expert and author of “Naked Retirement.” He advises shopping around for the best rates to be sure your balance is growing as fast as it can.
Ally Bank offers CD rates that are consistently among the most competitive in the country. You can open and fund your account with any amount. Plus, the Ally Ten Day Best Rate Guarantee gives you the best rate we offer for your CD during the first ten days starting with your open date if you fund your CD within that time.
So whether you’re looking to save for the long- or short-term consider the benefits available of banking with Ally Bank. Learn more at Ally.com or call live, 24/7 customer care at 877-247-ALLY (2559) today.
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