I've been thinking about this for a while, and decided it's worth getting everyone's opinions on... I know that liquidity is always considered paramount with an EF, but I'm wondering how "liquid" it truly needs to be. My EF is currently earning 2% interest, and my goal is $15k (6 months' expenses). I'm at ~$10k right now, and expect to have it finished off by the end of the summer.
Once I get it to that $15k, I'm considering putting it into the highest-rate (longest-term) CD that I can find. Right now, that would be about 4% for a 7yr CD. If for some reason I needed it (low probability...see below), it would take no more than 3-4 days (max) to get it out of the CD. I would sacrifice 3 months' of interest (~$150), but that would be more than made up for when you consider that I'm making double the interest I'm currently making. After the first 6 months, all interest I get would be above and beyond what I'd otherwise be getting, even accounting for the early-withdrawal penalty. In the future, if/when rates rise, I could figure out an appropriate "break even" point, close the 4% CD and re-open a new long-term CD at the higher rate. This all seems like a way to have the safety of an EF while still earning a decent rate of return on it.
Mitigating circumstances...
- I'm in the military, so my job/income are pretty secure. Medical expenses are covered for me.
- I don't own a home, so any maintenance required on my house is not my expense.
- I own (outright) a 3y/o, reliable car (Honda Civic), and it's fully insured.
- I've always lived on no more than 70% of my income, and can stop my savings contributions at any time if necessary.
- I keep about a month's expenses in my checking account as a buffer ("just in case"), and also have easily accessible money elsewhere.
So two questions come out of all this: Is this a crazy/stupid/bad idea? What am I missing?
Once I get it to that $15k, I'm considering putting it into the highest-rate (longest-term) CD that I can find. Right now, that would be about 4% for a 7yr CD. If for some reason I needed it (low probability...see below), it would take no more than 3-4 days (max) to get it out of the CD. I would sacrifice 3 months' of interest (~$150), but that would be more than made up for when you consider that I'm making double the interest I'm currently making. After the first 6 months, all interest I get would be above and beyond what I'd otherwise be getting, even accounting for the early-withdrawal penalty. In the future, if/when rates rise, I could figure out an appropriate "break even" point, close the 4% CD and re-open a new long-term CD at the higher rate. This all seems like a way to have the safety of an EF while still earning a decent rate of return on it.
Mitigating circumstances...
- I'm in the military, so my job/income are pretty secure. Medical expenses are covered for me.
- I don't own a home, so any maintenance required on my house is not my expense.
- I own (outright) a 3y/o, reliable car (Honda Civic), and it's fully insured.
- I've always lived on no more than 70% of my income, and can stop my savings contributions at any time if necessary.
- I keep about a month's expenses in my checking account as a buffer ("just in case"), and also have easily accessible money elsewhere.
So two questions come out of all this: Is this a crazy/stupid/bad idea? What am I missing?
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