Ally \"High Yield\" CD worthwhile for emergency funds?

[hightower]

Ally has a 5 year CD that pays 2%.  Does this seem worth it for a $10k emergency fund to sit in?  Or should I keep waiting for an even better rate since the federal bank is starting to raise rates?

My plan is to have 10k immediately available in a regular 1% savings account and another 10k in a CD or something similar, then my ROTH will be my emergency fund if both of these accounts are used up.

[jz]

Read the Ally penalty for withdrawing a CDs prematurely.  As long as you are willing to forfeit 5 months interest for an emergency, you have a creative way to fund an emergency account.

I like your creative, step-wise thinking, but avoid trying to predict future fed rates.

[DMFA]

hightower wrote:

Ally has a 5 year CD that pays 2%.  Does this seem worth it for a $10k emergency fund to sit in?  Or should I keep waiting for an even better rate since the federal bank is starting to raise rates?

My plan is to have 10k immediately available in a regular 1% savings account and another 10k in a CD or something similar, then my ROTH will be my emergency fund if both of these accounts are used up.

Click to expand...

I guess you could do the CD "ladder" with staggered maturity dates at 1-year intervals (like 5-4-3-2-1), then when it matures roll it into a 5-year if you don't need it. I wouldn't limit the flexibility for $75 after taxes on $10,000, though.

Imo if you don't want it in a savings account, get (likely) better return and liquidity with a muni bond fund in a taxable account.

[VagabondMD]

A CD ladder is really easy to do with Ally, and I use it for part of my efund.

[ENT Doc]

Watch out with their CDs.  I believe there is a 10 day window that you have to redeem everything or else it gets automatically reinvested in the same CD.  If it's a long CD, the higher price you pay to get your money out.  You don't actually get the interest unless it's held to maturity either, so it's ok to have as an emergency fund if you're willing to take the risk that you won't need it.

[jz]

Online Synchrony Bank  ( formerly GE Capitol ) is advertising 5 year CDs for 2.25%  at the $10k level.

[VagabondMD]

"Watch out with their CDs. I believe there is a 10 day window that you have to redeem everything or else it gets automatically reinvested in the same CD. "

I had a five year CD with Ally that matured about one year ago. There was plenty of warning and, IIRC, a grace period to cancel the CD once it rolled over. I did not get the feeling that I was getting trapped in another CD.

[hightower]

I like this idea. I hadn't considered that yet. Does everyone have a favorite muni bond fund? I'm assuming Vanguard probably has a good one?

[DMFA]

hightower wrote:

I like this idea. I hadn’t considered that yet. Does everyone have a favorite muni bond fund? I’m assuming Vanguard probably has a good one?

Click to expand...

VWITX, or VWIUX if you've got $50,000 to put into it.

[jz]

@Crixus,   because treasuries are subject to inflation and  interest rate risk.

and what is your concern re: Ally?

[adventure]

hightower wrote:

Ally has a 5 year CD that pays 2%.  Does this seem worth it for a $10k emergency fund to sit in?  Or should I keep waiting for an even better rate since the federal bank is starting to raise rates?

My plan is to have 10k immediately available in a regular 1% savings account and another 10k in a CD or something similar, then my ROTH will be my emergency fund if both of these accounts are used up.

Click to expand...

Seems like a lot of hassle (both paperwork to set up, and maintain, and deal with upon withdrawl) - esp for 10k, when there are online 1% savings accounts, or HELOC's (free if you don't use it, closing costs aside), or cash in a drawer, or low costs funds.

But I don't like leaving anything on the table. Just know your balance between time, hassle and money.

[TheGipper]

For the BoA users out there, here's an idea I use for eFund.

Tier I: BoA checking/savings to cover monthly bills and cash flow as well as whatever cash buffer you desire.

Tier II: Muni ETF of your choice in linked Merrill Edge account. I prefer VTEB (Vanguard muni index) but I realize this is too long term for many people's taste. Just pick your own favored short term bond or muni fund/ETF.

I am willing to tolerate the minor volatility for a slightly better yield than a CD.

Maintain a 100k total balance between BoA and Merrill Edge. You can buy some equity index funds or transfer part of Roth to ME if you don't need that much muni bonds.

You then receive 75% bonus on the BoA Travel Rewards and Cash Rewards credit cards giving essentially uncapped 2.625% cash back on all spend with Travel Rewards card, and 5.25% gas, and 3.5% on grocery store and Costco/BJs with Cash Rewards card.

Put all spending on CCs, autopay when possible. I mean everything (daycare costs, property taxes, income taxes, all recurring bills, etc...).

Recalculate your ROI again with extra CC Rewards vs just using a CD.