With most of the financial markets in rough shape, its time to reevaluate your emergency funds account.  Emergency funds are usually a fairly small moderate size collection of assets but with the credit crisis and market turmoil it would be prudent move to increase these funds to a even more secure and comfortable level.  Of course, saving money isn’t easy, especially in more difficult economic times as more consumers are on a tighter budget.


The tame horizon is a crucial consideration in deciding where to hold the funds for emergency.  Emergency savings and reserve funds are established to provide for unexpected expenses.  Since the time horizon for the money is unknown, the money should not be held in accounts with significant risk or ones that lack liquidity.  You need to invest in accounts that will ensure a steady principal value and be highly liquid.  The general rule has held that when safety of principal is the overriding consideration, FDIC insured CDs, a bank money market account or U.S. Treasury securities are the best investments. In the present interest rate environment, Treasury securities maturing in less than ten years are not competing with CD rates.


One of the most noteworthy benefits to investing in bank CDs is the liquidity these accounts posses.  Short term CDs allow the accountholder to access their money in a relatively short period of time.  When the funds are not needed the CDs can be rolled over into a new CD.  When investing in bank CDs with a longer term, the account holder has ability to gain access to their cash in the event of a short term need, without paying significant penalties.  When there are interest rate penalties for early withdrawal accounts can be established to hold multiple CDs with staggered maturities so that they are less likely to have to pay a penalty if they need access to the funds.


CDs are not the only option for short term savings but CD rates are generally higher than most other savings products offered by banks and bank CDs are FDIC insured.  The protection that is offered to investors with FDIC insurance is hard to surpass.  With short term and long term CD rates at unusually high levels, allocating a greater portion of your short term savings to bank CDs is an excellent choice.

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