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Less Interest

December 23rd, 2008 at 03:32 pm

I opened an email from the online bank that has our emergency fund money. The interet rate is going down from 3.25% to 2.80%. I'm not happy about this, but what can I expect in this economy.

I can say that we are still earning more than we were by having it sit in a traditional savings account. So, I will stay focused on that.

The account has about $10K in it and it is our emergency fund money. I haven't had to touch that money in over a year...maybe more. I'm wondering if I should put half in a CD to try to offset some of these falling interest rates. The same bank has 12 month CD's at 3.25%.

Any thoughts on whether that is wise? Since we are military our job is chance of a layoff!

7 Responses to “Less Interest”

  1. Ima saver Says:

    I think that is a smart idea.

  2. Aleta Says:

    That sounds like FNBO. I just received an email from them. If it's money that you might need, I don't know about tying it up at 3.25%. I had 2 CD's with FNBO and I have no complaints about them.

    I currently have a Money Market account paying 4.00% that will end on Jan 1,2009. Their new rate will be 3.05%. I moved the rest of my money from fnbo except for $1. to keep it open.

  3. creditcardfree Says:

    Yes, FNBO direct. Where are you getting 3.05%?

  4. Aleta Says:

    It is with a bank in South Florida called US Century. They are currently paying 4.00, but the promotion will end on Jan. 1st. I was told that the new promotion will start then at 3.05.

  5. scfr Says:

    I don't think there's anything wrong with putting some of your EF in to CDs, and it wouldn't hurt to look at longer term CDs. I think it really depends on what your EF is for, and the terms of the CD.

    We keep a much larger than what is considered normal EF for a couple reasons: My husband is self-employed, and so we never know when his income is going to take a major hit. While I do work and we have some passive income, the income from my husband's business makes up the bulk of our household income. So, while part of our EF is to cover expenses in case of a business setback (kept in MMAs or short-term CDs), part of our EF is also a "what if husband died?" contingency. (Some people have life insurance in cases like this; we decided to "self-insure" with our savings.)

    Given the steep decline in interest rates that I blogged about recently, we decided to go ahead and put some of our EF in a joint 5-year CD at 5.00% APY. The reason we felt comfortable locking up EF funds for so long is that there is NO penalty if principal is withdrawn due to the death of one or more of the account holders.

    ***Before you decide to lock up your EF in a long-term CD, be sure to check the terms of your CD. Make sure you could get at the money, without penalty, if you needed to.***

  6. jIM_Ohio Says:

    My EF is entirely in CDs. I keep "next months expenses" in my checking account (so getting paid in Dec pays Jan Bills) and the rest is in CDs.

    I open a 91 day, 122 day and 153 day CD (31 days apart) and roll them all into 91 day CDs when they mature.

    My CDs are 1.6% right now (savings account rates are .5%). If I made the CDs longer (181 day instead of 91 day) I could get another .5%, but would need 6 months expenses instead of 3 months expenses.

    I have a two tier EF. 3 months expenses is kept in CDs, the other tier is in PRPFX (a mutual fund) which is generally stable year over year. I try not to concern myself with the return on the cash because I have more money working in the mutual fund than I do in the CDs.

  7. Aleta Says:

    Jim: I quite agree with you about the laddering of the CD's. Like you, I also have the 1st months expenses in the checking account. It kind of takes the edge off of concerning yourself until a pay check comes in.

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