A friend of mine wants to buy a new computer. She’s got about 75% of the money saved, knows exactly how she’s going to save the rest, but she wants to wait til the fall to purchase. She’s done her research and knows exactly what she wants, but she’s afraid of making such a big purchase too quickly. She wants to be sure that she doesn’t have buyer’s remorse.
To ensure she doesn’t spend any of the 75% that she has saved, she opened up a 6 month CD with that savings. This way, she has a fixed date when she can finally buy the computer (provided she has saved the other 25%) and she won’t blow the money elsewhere.
I know some people put money into CDs for Christmas spending, but I’ve never really put much thought into doing it for a big planned purchase. As part of a bigger savings account, like a vacation fund or a car fund, sure, and a computer is not exactly a small expense, but I thought it was an interesting way to save.
I’m not sure it’s something I would do, but it definitely makes sense for her. Interest rates aren’t great, so she won’t make a whole lot on her savings, but it will be safe from her, and she’ll get to watch it grow. Who knows, maybe it will help her work on her savings and convince her to open some more CDs in order to continue to build her nest egg.
What do you think? Good way to save for a big purchase or overkill?
Megan is a 30-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
I have a 1 year CD due each and every month now and I am soooo glad I started a few years ago. I started with $250/month, then $500/month, and I’m now up to $750/month (it’s taken about 4 years to get to this level as I was saving for other stuff in the meantime).
This is mostly my emergency fund, and I like that there is one maturing on the first of each month, if I have an emergency and need the cash instead of rolling it over.
I’ve always gotten a bit better rate for locking it in…
I think your friend’s strategy is great… she’ll probably get a bit more interest than just regular savings and like you said, it’ll prevent her from dipping into the computer savings.
CDs, I’m all for them!