Better rates for the vigilant.

Posted By Paul


I have some friends that are going to try a cool experiment.

Their plan is to take some money and open some new accounts at a credit union in order to take advantage of a program for new members. The deal is:

If you open a checking account you get 4.5% interest on up to $25000 for each month where you jump through certain hoops. The hoops include things like making at least 10 debit card transactions in a month, logging into the online banking at least once a month, and so on. If in any month you fail to jump through the hoops successfully you don't get the 4.5% interest for that month.

I generally shy away from these accounts since I just don't think I have the time to make sure that I jump through the hoops successfully month after month, but if you're up to giving it a try, I think it's a cool idea.

Of course not only do you have to make sure that you jump through the hoops each month, you also have to watch the account to make sure that the terms of the account haven't changed. If the terms do end up changing you also need to be willing to take your money out and look for a place to put it all over again.

I'm eager to hear how it works out for my friends. Has anyone out there ever had an account like this? I'd be really interested to hear comments of how it worked for them. How easy was it to get the special rate, how long did the terms last, etc.

New CD Ladder and New Experiment

Posted By Paul

For those of you following the CD ladder postings that I have been writing recently, specifically:

Are CD Ladders Worth The Climb?
Recession coming? Time to lock in rates?

and

CD Ladder one year in

I thought you might find it interesting to know that I did a couple of things with my emergency fund in the hope that it would be educational to myself and other Frugalize readers.

I have one CD ladder and in the posting:

CD Ladder one year in

I estimate the amount of money that I would have made if I had I left the money in my savings account versus putting it in a CD ladder.

Well today I did three things with my savings account.

1) I created a new account and put the exact amount in it that I estimated above.
2) I started a second CD ladder.
3) I created ANOTHER new account and put the exact same amount that I put into my second ladder into this account.

So now I have two CD ladders and two savings account where each account holds the same amount that I put into the CD ladder. My plan is to periodically check in on the value of the CD ladders (where the value would include any penalties from early cash out) relative to their matching savings accounts.

The first ladder was started when the APY on my savings account was higher and the savings account rate has since fallen for the savings account. It will be interesting to see if that ends up being the case with my second ladder.

So keep reading for periodic postings on the CD Ladder vs. the savings account race.

The CD Ladder, one year in.

Posted By Paul

One of my first posts to Frugalize was when I was considering setting up a CD ladder.

Here is the link to the original article:

Are CD Ladders Worth The Climb

So if you've been reading some of my other posts you've noticed that I have been considering putting more money into CD's. I realized that a natural thing to do would be to take a look at the CD ladder that I already set up and see how it's actually doing (vs. what I would have made if I had left it in my savings account).

So first a little background in my CD ladder. It is through my Internet Savings Account and my initial deposit was $5000 back in November of 2006. Here was the initial set of CD's:

A: $1000 in a 1 yr CD at 5.1% APY.
B: $1000 in a 2 yr CD at 5.0% APY.
C: $1000 in a 3 yr CD at 5.0% APY.
D: $1000 in a 4 yr CD at 5.0% APY.
E: $1000 in a 5 yr CD at 5.0% APY.

Now currently I'm 14 months into it so my ladder looks like this:

A: Matured after one year and is now a 5 yr CD at 4.9%
B: 1 yr to go until maturity at 5.0% APY.
C: 2 yr to go until maturity at 5.0% APY.
D: 3 yr to go until maturity at 5.0% APY.
E: 4 yr to go until maturity at 5.0% APY.

So compared to my current savings rate (which is 3.4% APY) these interest rates look pretty sweet, but let's take the fees into account if I were to take my money out today.

Each CD has a penalty of 6 months of interest for early redemption. So if I were to cash the CD's in today I would get:

A: $1,038.54
B: $1036.96
C: $1036.96
D: $1036.96
E: $1036.96

For a total of $5186.38.

So now since the CD ladder has been around for 14 months (1.16 years) then to calculate the APY:

The APY is X in the equation:

5000 + (5000*(1.16*x)) = $5186.38

Which gives an APY of 3.2%

So how does that stack up? Well currently the APY on my savings account is 3.4% (and it has been falling over the last year, I think that back in November of 2006 is was around 4.4%).

So it's not possible to calculate exactly what the $5000 would have grown to over the last 14 months since I don't have the historical data of my shifting interest rate, so I'll just ball park it:

If it had in a savings account at 3.4% APY for 14 months I would have:
$5197.20

If it had been in a savings account at 4.4% APY for 14 months I would have:
$5255.20

So from the savings account I would have ended up with some amount between $5197.20 and $5255.20. I'm going to just average them to get a basic comparison. Let's say that in the savings account that after a year the $5000 would be worth:

$5226.20

So now let's compare:

CD Ladder Return = $186.38
Estimated savings account return = $226.20

So based on this estimate after a year my CD ladder is trailing the savings account estimate by about $40.

So what does this mean? Well it means that the early cash in penalty definitely plays a factor, but it's also interesting to note that after the relatively short period of 14 months into the ladder (where the penalty is 6 months of interest) that the ladder is quickly approaching the savings account. As time goes on the penalty of 6 months will become less and less significant of a factor in the equation and it becomes more a race of relative rates.

So overall I think the CD ladder has been a great experiment and a good decision. I'm VERY excited to see what the two year update is.

Recession coming? Time to lock in rates?

Posted By Paul

So there has been a lot of talk of a recession coming, which got me thinking.

I have an emergency fund that I use for rainy days (see my various other posts on my experience with a recent layoff), and I'm trying to figure out what to do with it.

I currently keep it in an internet savings account but all this talk of recession had me wondering.

Over the past months the interest rate for my savings account has been gradually dropping little by little.

It seems like there have been numerous interest rate cuts related to the possibility of a recession coming. Perhaps I should assume that interest rates will continue to fall, and lock in a rate now with a CD?

Also if you've read my article:

Financial Choices, Good vs Better

You know that I generally don't worry too much about squeezing a little more return out of an investment, but this idea struck me as essentially harmless and something that might make sense.

What do people think? Good idea? Bad idea?

Rate drop(s?)

Posted by Matt

If you haven't already heard, the Fed cut the rate significantly today, by 75 basis points. That in itself might be a cue for some people to start thinking about refinancing debt, but don't move too quickly. Another rate cut is likely on the way.

My wife and I may be shopping for a new improved mortgage soon!