diff --git a/packages/core/src/InstanceSettings.ts b/packages/core/src/InstanceSettings.ts
index d8ba2e616c0d0..9332212edae9f 100644
--- a/packages/core/src/InstanceSettings.ts
+++ b/packages/core/src/InstanceSettings.ts
@@ -6,7 +6,6 @@ import { jsonParse } from 'n8n-workflow';
 
 interface ReadOnlySettings {
 	encryptionKey: string;
-	instanceId: string;
 }
 
 interface WritableSettings {
@@ -32,14 +31,12 @@ export class InstanceSettings {
 
 	private settings = this.loadOrCreate();
 
+	readonly instanceId = this.generateInstanceId();
+
 	get encryptionKey() {
 		return this.settings.encryptionKey;
 	}
 
-	get instanceId() {
-		return this.settings.instanceId;
-	}
-
 	get tunnelSubdomain() {
 		return this.settings.tunnelSubdomain;
 	}
@@ -58,25 +55,31 @@ export class InstanceSettings {
 	}
 
 	private loadOrCreate(): Settings {
+		let settings: Settings;
 		const { settingsFile } = this;
 		if (existsSync(settingsFile)) {
 			const content = readFileSync(settingsFile, 'utf8');
-			return jsonParse(content, {
+			settings = jsonParse(content, {
 				errorMessage: `Error parsing n8n-config file "${settingsFile}". It does not seem to be valid JSON.`,
 			});
+		} else {
+			// If file doesn't exist, create new settings
+			const encryptionKey = process.env.N8N_ENCRYPTION_KEY ?? randomBytes(24).toString('base64');
+			settings = { encryptionKey };
+			mkdirSync(path.dirname(settingsFile));
+			this.save(settings);
+			// console.info(`UserSettings were generated and saved to: ${settingsFile}`);
 		}
 
-		// If file doesn't exist, create new settings
-		const encryptionKey = process.env.N8N_ENCRYPTION_KEY ?? randomBytes(24).toString('base64');
-		const instanceId = createHash('sha256')
+		const { encryptionKey, tunnelSubdomain } = settings;
+		return { encryptionKey, tunnelSubdomain };
+	}
+
+	private generateInstanceId() {
+		const { encryptionKey } = this;
+		return createHash('sha256')
 			.update(encryptionKey.slice(Math.round(encryptionKey.length / 2)))
 			.digest('hex');
-
-		const settings = { encryptionKey, instanceId };
-		mkdirSync(path.dirname(settingsFile));
-		this.save(settings);
-		console.log(`UserSettings were generated and saved to: ${settingsFile}`);
-		return settings;
 	}
 
 	private save(settings: Settings) {
diff --git a/packages/core/test/InstanceSettings.test.ts b/packages/core/test/InstanceSettings.test.ts
new file mode 100644
index 0000000000000..6d6e46ab9f883
--- /dev/null
+++ b/packages/core/test/InstanceSettings.test.ts
@@ -0,0 +1,61 @@
+import fs from 'fs';
+import { InstanceSettings } from '@/InstanceSettings';
+
+describe('InstanceSettings', () => {
+	process.env.N8N_USER_FOLDER = '/test';
+
+	describe('If the settings file exists', () => {
+		beforeEach(() => {
+			jest.spyOn(fs, 'existsSync').mockReturnValue(true);
+		});
+
+		it('should load settings from the file', () => {
+			jest.spyOn(fs, 'readFileSync').mockReturnValue(JSON.stringify({ encryptionKey: 'test_key' }));
+			const settings = new InstanceSettings();
+			expect(settings.encryptionKey).toEqual('test_key');
+			expect(settings.instanceId).toEqual(
+				'6ce26c63596f0cc4323563c529acfca0cccb0e57f6533d79a60a42c9ff862ae7',
+			);
+		});
+
+		it('should throw error if settings file is not valid JSON', () => {
+			jest.spyOn(fs, 'readFileSync').mockReturnValue('{"encryptionKey":"test_key"');
+			expect(() => new InstanceSettings()).toThrowError();
+		});
+	});
+
+	describe('If the settings file does not exist', () => {
+		it('should create a new settings file', () => {
+			jest.spyOn(fs, 'existsSync').mockReturnValue(false);
+			const mkdirSpy = jest.spyOn(fs, 'mkdirSync').mockReturnValue('');
+			const writeFileSpy = jest.spyOn(fs, 'writeFileSync').mockReturnValue();
+			const settings = new InstanceSettings();
+			expect(settings.encryptionKey).not.toEqual('test_key');
+			expect(mkdirSpy).toHaveBeenCalledWith('/test/.n8n');
+			expect(writeFileSpy).toHaveBeenCalledWith(
+				'/test/.n8n/config',
+				expect.stringContaining('"encryptionKey":'),
+				'utf-8',
+			);
+		});
+
+		it('should pick up the encryption key from env var N8N_ENCRYPTION_KEY', () => {
+			process.env.N8N_ENCRYPTION_KEY = 'env_key';
+			jest.spyOn(fs, 'existsSync').mockReturnValue(false);
+			const mkdirSpy = jest.spyOn(fs, 'mkdirSync').mockReturnValue('');
+			const writeFileSpy = jest.spyOn(fs, 'writeFileSync').mockReturnValue();
+			const settings = new InstanceSettings();
+			expect(settings.encryptionKey).toEqual('env_key');
+			expect(settings.instanceId).toEqual(
+				'2c70e12b7a0646f92279f427c7b38e7334d8e5389cff167a1dc30e73f826b683',
+			);
+			expect(settings.encryptionKey).not.toEqual('test_key');
+			expect(mkdirSpy).toHaveBeenCalledWith('/test/.n8n');
+			expect(writeFileSpy).toHaveBeenCalledWith(
+				'/test/.n8n/config',
+				expect.stringContaining('"encryptionKey":'),
+				'utf-8',
+			);
+		});
+	});
+});