I am sure everyone worries about their bank going bankrupt, but after thinking about it for a little while (and after calming the wife down since we mainly use Wamu) I decided it wasn’t necessary to freak out.

I have no where near the FDIC limits and I have faith in our country and banking system to where I would be made whole.

That is a whole different issue, one that I absolutely understand. I purposefully have more money going into my ING account (3%) vs my WAMU High yield savings (3.75%) because it provides a barrier to spending.

While I understand that, and if that is your reasoning RUN WITH IT! Just be aware why you are doing it…it is the same situation as the debt snowball vs debt avalanche widely debated all over PF Blogs, do what works for ya!

I, however, WANT part of my emergency fund somewhere there is a penalty if I pull it out. I know myself. I have a tendency to ‘fudge’ what actually consitutes an emergency. It’s part of fiscal self discipline to me to have my ‘lost my job’ fund in laddered CDs, while the ‘auto ins deductible’ and ‘washing machine blew up’ parts of the e-fund are in an online yield savings account with three day access.

Any funds that are any ‘closer’ WILL get spent. I’m still working on that part of my fiscal discipline LOL.

First, thanks for the kudos. I wasn’t trying to be profound but sometimes it just flows. I’d glad to to a guest post. Email me about it.

I agree about the opportunity loss. That’s part of the reason why I suggested not to lock all your money up in CD’s. You should always have some amount of liquidity. I don’t think there’s a set rule. Each person has to do what they feel comfortable with. You can also setup a ladder of CD maturities from say 3 to 12 months (I know you don’t like shorter term CD’s).

As for fees for breaking a CD, for example ING ‘charges’ 3 months interest as a penalty. So if you are at least 3 months into the CD at worse you break even. Small enough price to pay IMO if you really feel you need the cash immediately.

With bank interest rates as low as they are this is all probably a mute point in the short run anyway. The spread between a liquid vs. illiquid account is very small in most cases. Barely .25%. If the spread was greater or the chances of rates dropping a lot more I’d say locking up money for 12 months+ is a good move (wish I had openned more 5+ year CDs a couple of years ago!).

But always keep liquid anyway. There are worse things.

Although I do have to say your fractional reserve statement is profound. You are correct, I FEEL like I can get to the money, but if it is not htere I can’t. Simple yet profound, I might do a post on that later on (or maybe you’d like to do a guest post). I would love to explore that more.

I think your point, and please let me know if I am incorrect, is diversification within guaranteed returns, and to that I will give you credit. However, I still can’t see myself locking the money up due to the lost opportunity cost.

It may seem like I am changing the game here, but if your money is locked up for 1 year, that great real estate deal, business opportunity, stock opportunity, etc., is not an emergency and you are going to get killed on fees. This leads me back to my point, is the extra $125 ($87.50 after taxes) worth the lost opportunity cost? In my humble opinion, I still think it is not worth it.