You can find rates higher than 1 percent in some certificates of deposit offered by banks. The trade-off with CDs is that you will lock up your savings for a set period of time. The terms of a CDs generally range from one month to five years. The longer the term, the more interest the CD will pay. And like savings accounts, CDs are also insured by the FDIC.
You can adjust to the lock-up periods of CDs by creating a "ladder," which is buying CDs at staggering maturities whether it's over several months or years.
Here's how a CD ladder would work: Let's say you have an emergency fund of $6,000. You put $2,000 in a six-month CD, $2,000 in a 12-month CD and $2,000 in 18-month CD. When the six-month CD matures, you invest the proceeds into an 18-month CD. You repeat the process as each CD matures. If interest rates rise, your laddering strategy will benefit from the higher rates.
When you use a CD ladder, it helps to have a little cash on hand in an online savings or money market account for unexpected expenses, said Howard Pressman, a CFP and partner at Egan, Berger & Weiner in Vienna, Virginia.
"With this strategy, there is some money immediately available in the money market account and then every six months as each CD renews providing liquidity. If money is needed before then, the CDs can be broken for a small penalty," Pressman said.
Does CD laddering sounds like too much work? You can always go long on a high-yield CD with your emergency fund and risk the penalty if you need the cash, said Allan Roth, a CFP and principal at Wealth Logic in Colorado Springs, Colorado.
For example, if you invested in a five-year CD earning 2 percent annually, and the penalty is six months of interest if you withdraw early, you only need to stay in the CD for at least a year to match the 1 percent of a high-yield savings account. After that, the 2 percent CD would earn more than the high-yield savings account.