CD penalties
The usual advice is to keep your emergency fund completely liquid, which means that part of that advice is typically to AVOID keeping it in CDs, because of the penalties involved for early withdrawal. While I agree with this advice, I also think that there are times when it may be worth it to take the penalty on a CD. For example, suppose you’ve exhausted your emergency fund and have only CDs left. And suppose your CD is earning somewhere between 3 and 5% interest (which is a likely range if you’ve taken it out in the last few years). If you really need the money for a true emergency, you’re likely to be better off just paying the penalties instead of taking out a loan for the money or paying interest on a credit card. I recently discovered that the penalty on a 5 year CD that I have is 3 month’s worth of interest. That would come to $14.90 for that particular CD, which would surely be better than paying 14%+ in credit card interest if I really needed that money. The point is to thoroughly investigate all of your options: don’t just assume that conventional wisdom is the best. Find out for certain first.
