Deciding What To Do With The Emergency Fund

For the past couple of months my wife and I have been trying to decide where to move our emergency fund. Currently we have $30,000 (a little more than 6 months living expenses) set aside in a Bank of America Risk Free CD earning 4.04% (4.12% APY). For those who may not know about the product, it is a CD that allows you to take an early withdrawal without penalty before the CD matures (the full duration of the CD is 5 months). At the time it was a good option because it was offering a higher yield than a savings or money market account, however, it gave us access to the money if and when we needed it. By the way I just checked the Bank of America site and the rate of the CD has increased to 4.75% APY as of 9/14/06.

After doing some research on bankrate.com, I have found that we can increase our yield and have still have access to cash by either moving the money to a higher yield money market account from an obscure online bank or create a CD ladder. If you are not familiar with what a CD Ladder is you can read the following article on bankrate.com. Bankrate also offers a tool so you can structure a sample CD Ladder. We decided to go to the CD ladder route because we will have access to $5,000 per month for 6 months and the current CD yields are not bad.

We initially were going to go with eTrade, they offered competitive rates (especially on longer term CDs) and we have used their brokerage services so we had confidence in their online banking capabilities. Then we did a search on the big institutions and found that CitiBank has a couple of good offerings that made their services more attractive: First, they have a checking account that does not have fees if you either maintain a minimum balance of $1500.00 (in any combination of accounts). Second, they have an e-savings account offering 5% APY. Finally the yield for the 6 month CD is currently 5.5% APY (slightly higher than eTrade). Obviously we opted for CitiBank and opening the account online was extremely easy, be sure to have your driver's license and checkbook handy. Your drivers license is used for ID verification and your checkbook is used to initially fund your account. If you do not currently have an open account at another institution, Citibank offers several other methods to fund your new account.

If you have any questions please leave a comment.

Thanks for reading,
MoneyMover