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Can You Use a CD for Emergencies?

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A certificate of deposit — commonly called a CD — is a type of savings account offered by banks and credit unions. It’s a highly desirable account for people who are trying to make their savings grow in a short amount of time.

So, would that make a CD the right account for an emergency fund?

CDs and Savings Growth

A certificate of deposit is a favored account by investors who want their savings to grow and want them to grow fast. A CD can come with an interest rate as high as 4-5%. 

In comparison, the interest rate and the annual percentage yield with a basic savings account are much lower. The APY could be as low as 0.01%. So, your balance isn’t likely to grow very quickly.  

CDs and Emergency Funds

While you will want your emergency savings to grow as quickly as possible, you should reconsider using a CD as the sole account for your emergency fund. Why? 

A CD isn’t very accessible — and it’s not meant to be. A CD is meant to lock away your savings for a set term, allowing them to grow with interest. The term could be as short as 1 month or as long as 60 months (5 years). Once that term is over and the account has matured, you can access the savings inside. 

You can technically access the funds in a CD before it has officially matured, but that will come with consequences. First, you will have to pay an early withdrawal penalty — this is usually a payment in the form of several months worth of interest. Second, by opening the account and taking the funds out, you will undermine the original intent of the investment. You won’t get the growth that you were hoping for. 

In this scenario, you will have to make a difficult choice when you’re handling an emergency expense. You will either have to manage an early withdrawal and sabotage the savings plan, or you will have to find an alternative payment method. 

One alternative that you could look into is a fast online loan. If you’re approved for the online loan, you can use the borrowed funds to cover your emergency expense quickly. Then, you can focus on a repayment plan. 

When it comes to online loans, search for options that are specifically available in your state of residence. So, if you live in Tulsa, you should check out online loans in Oklahoma through CreditFresh as a solution. You’ll be eligible to apply for these online loans in Oklahoma, as long as you meet the loan requirements.

What’s a Better Account for an Emergency Fund?

A basic savings account doesn’t provide as much interest, but it does have the benefit of being accessible. You can make a withdrawal or transfer the moment that you need one—without facing any withdrawal penalties. 

If you’d like to get more interest growth in your account, you could look into an option like a high-yield savings account or a money market account. Both options have higher APYs than a basic savings account. 

What Can You Use a CD for?

This doesn’t mean that you shouldn’t use a CD! You should use it for other types of savings that don’t need to be so accessible (for instance, savings for a vacation in the future). Another option is to put a portion of your emergency savings into a CD to help it grow quickly while leaving the majority in a basic savings account. This method would allow you to reap the benefits of a CD without making yourself completely vulnerable in emergencies.  

Store your emergency fund in the right spot. Skip the CD and use a better account!

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