Marino on Money: April 14

I discussed building emergency reserves. I want to talk to you about making sure those reserves are earning as much as possible. How do you find higher rates without taking more risk? Let's cover a couple options:

Use a money market account. Money market accounts may keep your funds insured and carry interest rates that generally beat an interest-free checking account. Sometimes there may be limits on withdrawals, so check with your advisor about this option.

You may choose to stagger CDs. Most CDs offer FDIC insurance and higher interest rates. However, if you commit to a twelve-month CD and need the money three months later, you may suffer penalties. Here's a way around that: instead of purchasing a twelve month CD, break your funds into four equal parts and purchase three month, six month, nine month, and twelve month CDs. When the three month comes due, use the funds if necessary. If not, roll this money into a twelve month CD. At the end of a year four twelve month CDs will come due once a quarter instead of only once per year.

These steps will help you build your emergency cash reserves and maybe even raise the amount of interest you earn. It's kind of like having your cake and eating it, too.

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