Earn More with Certificate of Deposits (CDs)

Dec 15th, 2014     Bank Account

Certificate of Deposits (CDs) is an investment option available with the banks, credit unions and online banks where a customer agrees to store a certain amount of sum for a fixed period of time with the bank. During this period, the customer does not have access to the money stored in the CD account.

If the customer wishes to withdraw the funds before the agreement’s due date, the customer has to pay a penalty fee for it. Usually this penalty fee would be more than the interest earned on the account. Hence, it’s advisable to invest in a CD only if the customer is sure to keep aside the money for the decided period in the agreement.

Certificate of deposits with banks, credit unions and online banks

Customers who have existing accounts with banks, credit unions and online banks can open an additional CD account with them, the CD account will appear with a separate account number. Interest rates on CD’s are different between various financial institutions. Generally, online banks offer best rates on CDs followed by CUs and then banks; however, there can be exceptions.

In order to get the best rates, it’s advisable that customers compare interest rates and other features of CDs offered by various financial institutions by checking information online, through newspapers, banks, credit unions and telephone banking services.

Savings Vs Certificate of deposits (CD’s)

CD’s and savings accounts are different in nature, especially in the form of interest earned and immediate access to money. If customers are looking to earn high interest for their savings and they don’t require their money in the near term, they can opt for CD’s.

Saving accounts interest rates are comparatively lower than CD’s but customers can withdraw funds from saving account whenever they want. It’s not the same with CD accounts, customer cannot access the money stored in the CD’s for the decided period of time. This gives financial institutions the opportunity to use the funds stored in CD’s by giving them in the form of loans, mortgages and credit cards. Due to this reason the interest provided on CD’s is higher than savings.

Different type of CD accounts

Within Certificate of Deposits (CDs) accounts, there are different options available to the customers such as

Fixed CD account: CD accounts with a fixed interest rate and duration are known as fixed CD accounts. This is a normal CD account where customer comes into an agreement to store funds for a certain period of time with a fixed interest rate. If the customer wishes to use the funds before the due date in the agreement, then they would have to pay the penalty fee to access the funds in the account

Liquid CD’s: This type of CD accounts usually start with a low interest rate, as it gives customers the flexibility to use the funds without having to pay the penalty fee for withdrawing the funds before the maturity of CD as per agreement. Even though these accounts give the flexibility to access fund, they do have many rules and regulations related to the same. Therefore the customers have to understand them carefully before opening this type of CD, or else they would have to pay other fees related to the same. If customers predict an increase in CD’s interest rates in future and are sure about the same, then opting for a liquid CD account would be beneficial. As the customer can withdraw the funds and invest in a CD with a higher interest rate.

Bump Up CD’s: This type of CD accounts gives customers the option to switch to a higher interest rate once or twice during the term of CD agreement. Bump up CD’s are usually starting with a low interest rate, hence it’s advisable to check the pros and cons before applying for the same. The increase in the interest rate will only be applied, provide the customer contacts the bank and requests to increase the rate based on the information gathered.

Brokered CD’s: These types of CD accounts are CD’s sold in brokerage accounts. It’s a system where customer can buy numerous CD’s with different banks and maintain them all at one place. Such accounts are usually risky, as some banks may not have insurance and provide high interest rates. In such cases the customer has a risk of losing their savings in case of failures; hence a thorough research is required while opening brokerage accounts.

We see that all these accounts have to be compared and analyzed at the time of opening a CD account in order to earn high interest rate with CD’s. While customers open CD’s they need to check if the bank or credit unions are insured by FDIC and NCUSIF. Because CD’s insured by them are safer and secure to invest with.

Common Methods used to earn more from CD’s:

Several factors influence customers while investing in CD’s, some of them are interest rates, reason for saving, customer needs, amount to be saved and duration of savings. It’s more likely that CD’s with a longer duration period are likely to earn more interest. . Some of the strategies, customers can follow for investing in CDs are listed below

Bullets methods: Such a method is applicable for customers who choose to use the funds for a specific reason at a certain time. In such case bullet method can be used where customer invests in numerous CD’s and all the accounts mature around the same time.
Example: Miss P plans to get married in September 2015; she would save in numerous CD accounts probably from 2011 and they all would come to maturity by September 2015. This will give her access to her funds along with the interest earned on all the accounts and she can use it successfully for her wedding in Sept 2015.

Ladder Method: This method is used by customers who do not wish to save money for a using it in the near future, in this method the customers aim to earn a higher interest rate and its suitable for them due the uncertainty of interest rates on CD’s. Customers invest in 5 or more CD accounts for different terms in ascending order. And when a CD matures, they invest in the longest term CD in the ladder to earn more interest on their CD’s.

ladder method

Barbell Method: This strategy is similar to ladder method but in this method customer also invest in short term CDs along with long term CDs. This provide the investor opportunity to take advantage of new interest rates on long term CDs as they can invest the returns of short term CDs into new long term CDs. Barbell method is seen as more secure and adaptive method in comparison to the ladder method.

CDARS (Certificate of deposits accounts with registry service): It’s a program which allows customers to spread money among various banks, so that they stay below the FDIC insurance limits at any given bank. This is suitable for customers with huge savings, who seek security and high rate of interest on their savings. To avail this feature customer should contact the bank that’s participating in the CDARS program. If the customer applies for this program, bank will do the rest for them along with investing the money in CD’s with different banks based on the limit insured by FDIC.

Therefore we see that customers can earn more on CD’s based on different scenarios, hence it’s always beneficial for customers to do a proper research and apply for a CD account that’s most beneficial for them.

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Why Prefer an Online Bank Account?

Nov 20th, 2014     Banking

Bank accounts that are mainly maintained and operated online are known as online bank accounts. These accounts are provided by online banks, which are not the same as street side banks. Bank accounts can now be opened and maintained online, without having to go to a branch. Online bank accounts have similar features as the bank accounts functioning from streets.

However the main difference is the accessibility of the accounts. Street side banks offer customers with branches and bank staff to help them maintain their accounts. While online banks provide most of the services online, they don’t have branches and customers don’t meet the bank staff personally.

Features and services provided by online banks

Tech savvy customers who use internet frequently can now make the most of online banks, as they make banking easier and simpler for customers. With online banks customers can save a lot of time, without having to visit the branch. Banking chores can now be completed by customers from any location provided they have access to internet. Below we have listed few of the features provided by online banks.

  • Easy Account Opening: Customers can open online bank accounts online via website, for this they have to log on the bank’s website and apply by filling the online application form.
  • Purchase Certificate of Deposits (CD’s): Customers can buy CD’s online through the bank website.
  • Online Bank Customer Service: If customers have any enquires they can connect with customer service via online chat, email and toll free telephone banking services.
  • Fund accounts: Customers can open different type of fund accounts online.
  • Transfers: If customers have two or more accounts with the online bank, they can transfer money easily between their accounts through online banking. This service can also be used for transferring funds to other bank accounts.
  • Balance, Recent Transactions and Statements: Customers can view and take print outs of statements, recent transactions and balance through online banking• Direct Deposits and Standing Orders: Online bank accounts provide these options to make customer’s life easier, and best thing is – this can be done online in fraction of minutes.
  • Debit Cards: Customers who have checking accounts will be provided with a debit card, so that they can withdraw funds at ATM’s.
  • Online Bill Payments: By logging on the accounts customers will be able to make payments between different states and countries; this can be done by filling the required information online.
  • Check: After customers open the accounts online, checks are mailed to them via post.
  • Loans: Through online bank’s, customers can apply for a loan by getting a quotation through their website.
  • Overdraft facility: Online banks are offering customers with overdraft facility; customers can use this overdraft facility by applying for it. Many people now opt for overdraft facility as this saves them during the rain day. Also interest to be paid on the overdrafts is usually low.

We can see that the features and services provided by online banking makes customers’ life easier, it also saves them from standing and waiting in long lines at the branch. Some people prefer online bank accounts as its less time consuming and simple to use.

Benefits of online bank accounts

Online bank accounts have many similar features and services that are similar to institutional bank accounts. With so much in common certainly customers would like to know why to opt for online banking, bearing this in mind we have listed some points below.

  • Hassle free banking without branch issues: As online banking doesn’t have branches customers don’t have to face the trouble of waiting at the branch. Generally customers have to stand in a line to submit forms for getting loans and opening accounts. However customers don’t face the same issue with online banks as it’s much easier. All that the customer has to do online is fill the details and click to submit. So we see that people can easily save time and get their banking needs fulfilled from any location with internet access.
  • Interest Rate: Online banks do not have high expenditure like the financial banking institutions. Buildings, staff, branches and other infrastructure expenditure is not applicable for online banks. As online banks don’t have high expenditure, they are more likely to give higher interest on savings and lower interest for loans. However this can vary from bank to bank and some financial banking institutions might offer more too.
  • Free Checking Accounts: Customers, who wish to get an online banking account, can simply start by applying online with a minimum balance of $1. Some online banks offer free checking accounts too. Customer doesn’t require huge deposits to open a checking account. It’s very rare to find free checking accounts at financial banking institutions.
  • Updated with technology: Financial banking institutions provide their customers with internet banking, due to which many customers get to manage some accounts online. However, when compared to online banks, we can see that online banks are more advanced with technology than street side banks. Online banks are totally dedicated to serving customers online, hence they always try to find new innovative methods to serve their customers. For example: Online banks came up with the concept of mobile check deposits, this service made customers download a mobile application through which check deposit can be made by clicking a picture of the check. The instructions to be followed would be provided by the bank and the mobile screen. Following which the customers of few online bank accounts could get their checks deposited without going physically anywhere. This way online bank comes up with many innovative tech savvy services to keep their customers happy.
  • Independent maintenance: Online bank account removes the hassle of middlemen. The customer doesn’t have to worry about any errors or wrong entries. As they will be the sole managing party on the account. When customers take care of their own accounts they are more cautious and careful while making payments and other transactions. As online bank accounts give customers complete access to their accounts online, there is more scope for managing the accounts productively. For example: Customer M has checking account and savings account. Ms M receives $1000 from her aunty; this amount credited her account as of today. In this scenario Ms M doesn’t have much expenditure for the next 1 year, and decides to save. She can immediately log on the account online and transfer the funds. By doing this she will earn interest from the day of receiving the funds, and she can also check how much interest she is earning by logging on to the account every month.
  • Saves Paper: Customers don’t have to order statements every month, as they can check the information online. This will surely reduce the requirement for paper and saves the environment in one way.

Hence from the above mentioned information we can clearly see that online banks can make customers life more comfortable, by helping them operate their accounts online. Online bank accounts are easy, safe and less time consuming. If customers are well advanced with technology and internet they can surely opt for online bank accounts, as it not only saves their time, but also helps them earn decent interest on savings.

Customers who opt for online bank accounts should be cautious about online banking security; it’s advisable to ignore phishing emails while following the other security methods to maintain the security of their account.

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