I Just Emptied My Savings Account for This Reason

I'm the sort of person who finds it painful to remove money from savings. When I had to take $12,000 out of my savings account last year for home repairs, I was grateful I had the money, but I also cried a little bit. True story. 

As such, removing money from my savings isn't something I do lightly. But earlier this month, I took a huge amount of cash out of my savings account for one big reason. And I'm not upset about it in the slightest. 

Chasing a better interest rate

Right now, I'm getting 4.25% on the money I have in my savings account. But because my bank is offering 5% on a 12-month CD, I decided to move a lot of money out of my savings and replace my 4.25% APY with a 5% APY. 

CD rates are up right now following a series of interest rate hikes from the Federal Reserve that happened in 2022 and 2023. But the Fed has signaled that it's likely going to be ready to start cutting rates later in 2024. 

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Once that happens, I fully expect CD rates to go down. And I expect savings account rates to fall as well. So I wanted to lock in a great CD rate while I still could.

Not only can I get a better rate on my money right now with a 12-month CD compared to what my savings account is paying, but the 4.25% I'm getting at present is not by any means guaranteed. On the other hand, the 5% rate on a 12-month CD is a sure thing. And I'd rather know that I'm getting a return on my money that I'm happy with.

Don't put all of your money into a CD

Emptying my savings account and moving a bunch of cash into a CD made sense this month. But to be clear, the savings account I took the money from was not my emergency fund account. 

I maintain separate savings accounts for different purposes. The account I raided this month was my savings account for home improvements and vacations. 

Since I don't have big home projects on the horizon, and because I've already put down money for the trips we're planning to take in the near term, I'm comfortable taking that money and putting it into a 12-month CD, knowing full well that I won't be able to access it for a year. If I do take an early withdrawal, I'll face a penalty.

However, I have a separate savings account that houses my emergency fund -- cash I might need to tap in the event of a layoff or income loss, home repairs, or issues with my vehicle. And the money in that savings account is money I absolutely will not put into a CD, since I need that cash to be accessible to me at all times.

Today's CD rates won't be around forever. So if you have extra money in a regular savings account, you may want to take it and open a CD before rate cuts come down the pike. 

But don't tie any of your emergency fund up in a CD. Doing so is a mistake that could cost you big time and negate the financial upside of locking in a higher interest rate on your money.