Is a CD a Safe Place for Your Emergency Fund?

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield. APYs are subject to change at any time without notice.

Your emergency savings should be in the bank. But does a CD count?

You never know when life might throw you a financial curveball. You could wake up one morning to a car that won't start, encounter a costly home repair, or land in the hospital with a trail of expensive bills to cover. Or you could lose your job and have to go without a paycheck for weeks or even months.

That's why it's so important to have an emergency fund. Ideally, you should have anywhere from three to six months of essential living expenses tucked away for a rainy day (Use our emergency fund calculator to see how much you should save). And generally speaking, a savings account is the best place to store that cash. A savings account makes the cash instantly accessible, and the principal amount you save is protected. By contrast, if you put your emergency fund in an investment account, it can lose value when market conditions decline, and if you take a withdrawal during a downturn, you'll have less money at your disposal. 

Of course, the one downside of keeping your money in a standard savings account is earning limited interest on it. Even higher-yield savings accounts today are paying under 2%. 

Our Picks for the Best High-Yield Savings Accounts of 2024

APY
4.50%
Min. to earn
$0.01
APY
4.25%
Rate info Circle with letter I in it. See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.
Min. to earn
$0
APY
4.25%
Rate info Circle with letter I in it. 4.25% annual percentage yield as of June 22, 2024
Min. to earn
$1

But what about a certificate of deposit? With a CD, you can earn over 2% these days, which is a bit more enticing. Still, it may not be the best place for your emergency savings either.

Should your emergency fund go in a CD?

The main reason savings accounts have an edge over CDs when it comes to emergency cash is that they're more flexible. With a savings account, you can access your money at any time without penalty. On the other hand, with a CD, you commit to locking up your money for a preset period of time, whether it's six months, one year, or longer.

True, with CDs you secure a higher interest rate on your money than what a savings account pays. But if you cash out your CD before it comes due, you'll be penalized to the tune of several months of interest for raiding that account early. 

As such, a traditional savings account may still be a better choice for your emergency fund. You'll earn interest while your money is in that account, and you don't risk losing that interest at any point.

That said, one option you can consider is putting some of your emergency fund into a regular savings account, and the rest into a CD. That way, you can access a chunk of your savings penalty-free at all times. 

Another option? Put part of your emergency stash into a regular savings account, and put the rest into a CD ladder. With a CD ladder, you divvy your money up into several CDs that come due at different times so you have access to your cash at different intervals. Say you have a $12,000 emergency fund. You might choose to put $6,000 into a regular savings account, $3,000 into a six-month CD, and $3,000 into a one-year CD. That way, some of your cash won’t be locked up for too long.

Putting your emergency fund in a CD is still a much safer bet than investing it -- but it's not as flexible as a regular savings account. However, while losing a few months' worth of interest isn't a great thing to have happen, it's also not the worst penalty out there. So if you decide that you can't bear to watch your emergency cash earn minimal interest in a savings account, a CD may be a reasonable choice.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts could earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

Two of our top online savings account picks:

Rates as of Jun 22, 2024 Ratings Methodology
Advertisement
Citizens Access® Savings Capital One 360 Performance Savings
Member FDIC. Member FDIC.
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor
Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best
= Excellent
= Good
= Fair
= Poor

APY: 4.50%

APY: 4.25%

Min. to earn APY: $0.01

Min. to earn APY: $0

Our Research Expert

Related Articles

View All Articles Learn More Link Arrow