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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Checking Account 101

Dec 15th, 2014     Bank Account

Checking account is a bank account which helps you manage your finances easily. A checking account is an active account on which all kinds of transactions can be processed. The most common services and features available on a checking account are check book, bill payments, debit cards, international payments, inter account transfers, and automatic transfers such as direct deposits and standing orders. Apart from making payments, customers can use their checking account to receive payments and deposits too.

How to open a checking account?

It’s wise to do a proper research before applying for a checking account, as customers will be provided with different type of options on a checking account. In these cases it’s best to apply for the account that’s most suitable for you.

Some of the options are listed below –

Minimum balance to maintain the checking account:
Most of the checking accounts require a minimum balance to be maintained in the account, as this will stop the customers from overdrawing on the account. Such accounts, will charge customers if the minimum balance is not maintained on the account. Hence the customer should choose an account where he can easily maintain the minimum balance.

Limited number of checks, bill payments and other payment services:
Checking accounts come with different type of options. Some of them provide limited number of checks and check payments, limited number of bill payments, direct deposits and standing orders. Hence it’s advisable for customers to read and know these options, before opening an account.

Debit Cards:
Checking accounts provide customers with different type of debit cards. For example some debit cards can be used for withdrawing cash only and customers cannot make purchases with it. Some debit cards can be used in different countries; there is a charge for international transactions. Therefore, it’s advisable for customers to check the type of options they have on the debit card before applying for it.

Overdraft facility and protection:
Checking accounts have different options with regards to overdraft facility and protection. In case of emergency if customer is unable to make payments, some checking accounts might offer the option to transfer funds from an easy to access savings account to help the customer process the payments successfully. This can help customers to avoid going into a negative balance on the account. Some checking accounts have overdraft facility, wherein customer would be offered a limited credit on the account. If the customer uses this credit offered by the bank, then would be liable to pay a low interest rate as agreed during the time of opening the account.

Customers who wish to open a checking account should have a decent credit score, as the banks, credit unions and online banks would give a checking account to customers with good credit history.

Different type of checking accounts:

Free Checking Account:
This type of checking accounts does not require any fees or minimum balance to be maintained on the account. Customer can open the account for free, whereas there is a possibility that this kind of account will offer customers with checks, debit card, bill payments etc. However other bank charges such as charge for stopping checks, charge for going into a negative balance etc would be applied on the account.

Basic Checking Account:
This type of checking account usually requires a minimum balance or fee in order for the customers to use the account. The fees vary based on the amount to be maintained. Such accounts might give limited checks and payment options.

Joint Checking Accounts:
An account owned by two or more people is called as a joint checking account. On such accounts all the parties will be issued with checks, debit cards and online banking options. In some case the bill payments and other payment options can be limited to a single partner on the account.

Student Checking Accounts:
Such accounts are offered to students who are resident of USA and also for student from overseas. Such accounts usually have a low maintenance balance and fee. Students can enjoy free checks, bill payments and debit cards facilities on the account with an added benefit of low interest rate on loans and credit cards that are especially offered to students.

Senior Checking Accounts:
Customers who are 55 years and above can apply for a senior checking account. There is a possibility that such accounts have special rates and offers for traveling, purchasing medicines etc.

Checking Accounts with Interest:
Some checking accounts credit customers account monthly or annually with interest on the balance maintained in the account. Such accounts usually require a minimum maintenance balance. If the balance goes below the minimum amount to be maintained in the account then the customer would be liable to pay high charges on the account.

Express Checking Accounts:
These accounts are suitable for customers who wish to bank electronically via internet, telephone, Atm’s and mobiles. The fees and maintenance balance are comparatively low. However if a customer requires bank or credit union staff’s assistance with their finances then would have to pay an additional fee to have an appointment with them.

Green Checking Account:
This type of accounts usually charge low fees and low minimum balance to be maintained on the account. It’s because such accounts have the option wherein they support environment and avoid plastic, paper usage as much as possible to protect the environment. Green checking accounts have different debit cards options and there is a possibility that no paper statements are sent on such accounts. If customer requires paper statement then they have to pay a fee for the same. Fees vary depending on the number of statements required.

Premium Checking Accounts:
Such accounts are suitable for customers with huge funds. The minimum balance to be maintained on such accounts is usually high it can be $1500 and above. Customers have to pay high fees to maintain such accounts but enjoy some special benefits. Some insurance, loans, credit cards and savings account will be provided at a good interest rate. Premier account customers might get to withdraw funds for free while traveling abroad.

Business Checking Accounts:
These accounts are suitable for businesses to manage their finances, pay salaries and make purchases. The offers and accessibility options can vary between the account holders on such accounts.

We see that customers have loads of variety while choosing a bank account. Based on the needs and requirements customers can opt for the checking account that’s most suitable for them. It’s always secure to opt for accounts where customer is able to maintain the minimum balance and fees. Credit unions and online banks might require minimum balance anywhere between $1 and above. The fees and charges vary widely.

Benefits of Checking Accounts:

Checking accounts help customers to manage their finances. There are loads of benefits which the customer can enjoy with checking accounts some of them are listed below.

Receive Deposits: Customers with checking accounts can receive payments from employers, family and friends easily. These deposits can be made electronically or via a check. If the credit transfer is done electronically then the funds are likely to be available faster than a check deposit on the account.
Make payments: Customers with checking accounts can make payments electronically, via checks and debit cards. We see that customers with checking accounts have many options to make payments hence this makes it easier for them to manage their finances.

Time Saving: Customers with checking accounts don’t have to go physically to give cash for their payments or receive cash for their deposits. This way it helps them save a lot of time while dealing with their finances.

Online Shopping: These days, almost everything can be purchased online right from household requirements to luxuries. Therefore customers can sit anywhere is the world and make online purchases with their debit card.

Investments, loans, insurance, credit cards, mortgage and savings: Customers with checking accounts can opt for all these easily. When customer have a checking account it becomes easier to apply for a loan, savings accounts, mortgage, credit cards etc.

Keep a tab on their finances: Customers with checking accounts can view their statement and manage their finances easily.

Debit Cards: Customers can withdraw money from an ATM easily when they have a checking account. With debit cards customers can make purchases at shops too.

Safe and Secured Money: When customer keeps they funds in a checking account they can be assured of the safety of their money, especially if the funds are insured by US government.

Online Banking: Customers with checking accounts can use online banking facility to make payments, transfer money between accounts, check recent transactions, make international payments etc. This way they can manage their accounts easily with checking accounts.

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