I recently received a notice from ING Direct that they have increased their CD rates. 6 and 9 month CDs are at 3.75% and CDs from 12 months to 48 months are at 4%. A 60 month CD is at 4.25%, but I can't imagine locking up my money for 5 years. I like to think that CD rates will continue to increase - but you can't ever be sure.
I put a bit of my savings into 6 month CDs with ING Direct at the beginning of the year when interest rates started dropping. When the term was up, I opted to roll the money into new 6 month CDs, as ING Direct was offering a .1% bonus for renewing the cds. I figured that as long as I was getting a better interest rate than I was on my savings account, it was worth it.
Had I waited a few months, I could have gotten a better interest rate - my two 6 month cds are at 3.5% and 3.6%. Of course, I don't regret waiting, but I am considering starting up a new CD ladder with some of the money I have in my savings account. Mrs. Micah recently wrote a great post on CD laddering with ING Direct, so I won't repeat that here. ING Direct does make it quite simple, so it's definitely worth a shot.
CDs are a great way to sock away money if you have a planned expense coming up. Working on saving for a vacation for next summer? Put whatever you have saved into a 6 month cd now. It will earn more interest than it would in your savings account, it will be available when you need it, and you won't be tempted to spend it.
I also think that a CD isn't a bad plan for at least part of your emergency fund. Have six months of expenses saved? Put three months worth into a 6 month cd. Sure, it is possible that you could start the 6 month cd, then lose your job, spend the 3 months of expenses and still have 3 months before the cd term is up. However, if that happens, you can pull the money out of the cd early and pay the penalty, which by that point may just be the loss of interest. Plus, how likely are you to actually need that money? The point of emergency funds is that they are used in emergencies, which hopefully are few and far between.
I suppose another way to put your emergency fund into CDs would be to save seven months worth of expenses. With a little bit of work, you could have 6 CDs laddered monthly, each valued at one month's worth of expenses. You would still have one month's worth in a savings account, but every month you would also have a CD term end and have access to another month's worth of expenses. For those of you who want to get the absolute most from your money, that might be worthwhile, and it wouldn't be that complicated, but I have to admit, even that seems a bit extreme to me.
For now, I'm just using CDs to bring in a bit of extra interest on savings that I don't plan to need anytime soon. So far, it's been a great way to grow my savings with very little work on my part.