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You can get 4.4% from Vanguard for a money market right now, and can pull your money any time you want. Immigrant Direct is good i’ve heard as well.

So put your money in a good money market. Then you watch the Fed. When they stop raising interest rates, or start lowering them, get a CD. They regularly raise and lower at 25 basis points per quarter, so that’s the most you’ll miss out on. Then you’ll be locked in at a good rate 4.5 - 6% as the Fed lowers the interest rate back to 2%.

I also would avoid the stock market for an emergency fund. way too volatile, and the tax rate is high if you have to remove a large portion of it. Its an emergency fund. that means you want it ready to go when the floor drops out.

If you want to invest in the stock market, then split your account between emergency fund (however much you need) and stock market growth.

I’ll share with you some thoughts that JD and I kicked around in email concerning this topic. I hope it eases the heartburn a little.

My perspective toward stocks is likely tilted since I’m affiliated with an Investment Advisor firm. If the cushion is large enough (say, 6-12 months of living expenses) then there is always an issue you can liquidate if necessary. Very few life situations require tapping into the bulk of an emergency savings fund. In most cases you draw a little and then get back on track, or at the very least the draw is gradual and periodic. Both scenarios favor investing at least 75% of an emergency fund for growth.

I wouldn’t suggest this for everyone, and I don’t think it is particularly adventurous or risk-prone. The two biggest risks people face are continued employment and failing health. One always has to read the tea leaves, so to speak, about these risks. In other words, I believe a person should be more concerned about these risks than concerned about market risk.

I have real heartburn with the idea that you invest the majority of emergency savings in the stock market. The stock market by it’s very nature is volatile. You get better long-term returns but in the short-term, there can be some heart-stopping drops. Putting emergency money into stocks can be extremely risky and emergencies tend to adhere closely to Murphey’s Law.

Definition: emergency money is money you might need at a moment’s notice.

Lesson: don’t put a risk money that you might need at a moment’s notice.

6 months later I closed all of the CD’s since the current APR in my savings account had already eclipsed all but the 4 year CD. I really only lost a few bucks from closing, and I made up the loss in a few months.

In these days when APR’s are going up so fast, locking into a CD really isn’t a great idea. If you’ve got $15K or more to invest, you can get about 5.3% in a money market account with checks at MBNA, which is only a hair less than most multi-year CD’s.

CDs are appealing to me because:

* my credit union offers them, so I can keep dealing with the same people
* they have a fixed, guaranteed interest rate
* they’re an investment instrument I haven’t tried yet

Also: personally, I’d never put emergency savings into the stock market. It’s not very liquid (though perhaps just as liquid as CDs), and most of all it’s subject to much greater risk. I’m all for the stock market — no question — just not for an emergency fund. (But remember: DO WHAT WORKS FOR YOU.)

Why invest in CDs? I use it for my emergency fund. If I need to use that money I will lose some interest if I cash it in. That will make me think twice before I cash it in and I won’t do that for anything that is not truly an emergency.

I ladder them for a full year so I only have to think about it once a year. I have the interest from each CD paid into a savings account each month (rather than paid at the end) along with additional $$ from every paycheck. At the end of the year I take the cashed out CD plus the money that has accumulated over the year in the savings account and open a new 5 year CD.