Laddered CDs and emergency funds

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Q. I want a better place for my emergency fund, and I’m thinking of using laddered Certificates of Deposit (CDs). How would that work, and is it a good idea?
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A. An account with laddered CDs is one method to invest your cash, but there might be better options.

To create a laddered CD strategy, you’d buy multiple CDs with different maturity or expiration periods, said Ron Garutti, a certified financial planner with Newroads Financial Group in Clinton.

“Unfortunately CD — and savings account — yields are near all-time lows,” he said. “Additionally, because the yield on government interest bonds are also so low, it is hard to find a good place to park short- to medium- term savings.”

Garutti said generally, the longer you tie up your money in a CD, the higher the rate you will earn.

According to, rates for one-year CDs are currently around 1 percent. Rates for three-year year CDs are around 1.5 percent, while rates for five-year CDs are around 1.8 percent.

That’s not a huge difference in interest rates.

Garutti said before you invest in the longer-term securities, you need to be sure you’re aware of the commitment rules. Can you get your money early if you need it? If so what are the consequences?

Another option could be to use high-yield online savings accounts, Garutti said.

“They offer comparable rates to one-year CDs but the money is not tied up,” he said. “Rates for these type of accounts are approximately 0.9 to 1.0 percent but offer full liquidity.”

Garutti said online savings accounts generally need to be linked to your checking or savings account so you can move money back and forth.

“These accounts are limited by federal regulation to six monthly transfers, so they are not replacements for everyday checking accounts,” he said. “They also are generally FDIC-insured up to $250,000.”

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This post was first published in June 2016. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.