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Home > Is a Two Year CD for Me?

Is a Two Year CD for Me?

April 28th, 2009 at 09:27 am

I received an email from my bank, USAA. They are an online for military members and their families. The bank is offering a 2 year CD at 3.25%. Sounds great, huh?

But, is it for me? I'm sure a could put a portion of our emergency fund in there, but not all. I don't like the idea of the money being tied up and unavailable in the event of an emergency.

We might have the opportunity to take advantage of a 10% savings rate in the next year or so. This is available to deployed military. So, do I tie up the funds leaving them unavailable for this opportunity?

Will rates go up higher in that two year time frame? Is two years too long?

We have just over $10K...how much should I tie up at that rate, if I do take the deal?

Anyone with any thoughts? Right now the money is only earning 1.9% in an online money market account.

5 Responses to “Is a Two Year CD for Me?”

  1. lartiga Says:

    That is a great rate and two years is not too long! Maybe you should invest at least half of your EF in a CD. In a dire emergency, which hopefully will not happen, you could still withdraw the funds in the CD, although you'd probably have to forfeit some interest (the penalty). You should also be able to take the interest out without penalty.

  2. monkeymama Says:

    In your situation, no, I wouldn't tie it up for 2 years. I probably wouldn't anyway - rates are LOW. They will likely rise (my opinion).

    BTW, what is the $10k for? Do you have any other savings?

    I am not opposed to long-term CDs. I have a 3-year CD coming due in a few months. I am not investing in any other CDs right now and likely won't renew it, considering I have pretty much never seen rates so low.

  3. creditcardfree Says:

    MM: We have other retirement and college savings, but the $10K is our emergency fund money. We have another $1K in checking as a cushion right now.

  4. Aleta Says:

    I don't know know that your financial situation is but, I don't think that $10,000. should be put in a 2 year CD. Some situation could happen and you wouldhave to break the CD.

    Could you live off of $5,000 a year? That's $416 a month. An emergency fund should be kept in a high yielding saving account that can you can tap at any time. Sometimes safety is worth more than interest. You will eventually get to a point that you can invest more than your emergency fund.

  5. Sean Says:

    Do not put your Emergency Fund into a CD or other instrument that prevents you from accessing it. A high yield savings account as Aleta suggests is best, I personally use a money market account that gives me reasonable access and decent return.

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