Thank goodness for that emergency fund

WASHINGTON >> If you’re able to save money in an emergency fund, you may be frustrated at the low return on your investment. But don’t be. This rainy-day money is meant to be safe, accessible and ready for a storm.

During a recent online discussion, certified financial planner Carolyn McClanahan joined me to answer questions from readers on where to park your emergency fund and whether you should pull out retirement money to pay off consumer debt. Here’s her advice.

Q: Where should I keep emergency money? My grandmother kept her money in odd places like curtain rods.

McClanahan: Keep the money in a money market account so you earn some interest. Money markets typically provide the highest interest with the most liquidity. I would use these over plain savings accounts (lower interest) or CDs (not as liquid). The key is that a curtain rod isn’t that safe and it isn’t earning any money. Having it in a savings account keeps it safer and you make some money on your money.

Q: We have $75,000 in a money market account for emergencies, like a layoff. I’m thinking of making $65,000 of that money work harder in a oneyear CD at 2.85 percent APY and leaving $10,000 in the money market for fluidity’s sake. Does this make sense?

McClanahan: That is a good rate for a one-year CD, but I would make sure you have at least one month of expenses in the liquid money market so you don’t get hit with penalties if you need [to tap] that money.

Q: I am in my 50s, married with kids who are now adults, and with about $75,000 in a savings account. I am not very