Get Here: Are Certificates of Deposit Obsolete?

Tuesday, January 18, 2011

Are Certificates of Deposit Obsolete? - Bargaineering

Posted: 18 Jan 2011 09:38 AM PST

A certificate of deposit (CD) is a deposit account that pays you a fixed interest rate over a set period. You can close a CD early and pay a penalty but the bank cannot close it (call it) early, unless it’s a very rare callable CD. CDs are nice because they often represent the highest safe return you can get since those deposits are protected by FDIC insurance.

However, when the difference between a 12-month CD and an online savings account is microscopic, you start to wonder if it’s worth the effort. I took a look at one a major online bank (I won’t say which because I don’t want to update these rates when they change, but they are a “friendly” bank and they have very good rates) and their high yield 12-month CD had a yield of 1.29% APY. Their online savings account offered a yield of 1.09% APY. While a 0.20% APY difference is large in relative terms, it’s tiny in real terms.

0.20% APY on $100 is 20 cents. By locking your savings into a 12 month agreement, you earn an extra 20 cents per $100. I’ll be the first to say that every little bit helps, but 20 cents isn’t going to cut it (this is before you carve out a few cents for taxes!).

It makes me wonder, in this era of high yield savings accounts with rates that rival certificates of deposit, have CDs been made obsolete?

Are Certificates of Deposit Obsolete? from personal finance blog Bargaineering.com.

Revisiting Reward Checking Accounts

Posted: 18 Jan 2011 04:08 AM PST

It’s been almost two years since I last looked at reward checking accounts and I thought it was about time we checked them out again to see what had changed. Two years ago, most reward checking accounts offered over 5% interest on deposits of up to $10,000 (sometimes $20,000 or more) if you satisfied certain requirements. Those requirements often included a dozen charges on the debit card, online banking, and paperless statements.

Reward Checking Today

Evantage Bank was one of the banks I looked at two years ago. They offered 5.25% APY on a checking account for balances up to $10,000 with a requirement that you use their MasterCard CheckCard at least 10 times a month and sign up for paperless statements. Back then, interest rates on high yield savings accounts were much higher.

I was surprised to learn that Evantage has kept the same requirements (10 charges, paperless statements) and their interest rate is still a healthy 3.75% APY. You earn that on your balance up to $10,000 and you earn 1% on amounts over $10,000, which is only slightly lower than what many online savings accounts are offering.

In fact, since many of the banks work through the same rewards checking program, BankVue, their interest rates have been about the same – about 3.75%. Bank of the Wichitas, AmericaNet Bank, and First New England FCU all had rates around 3.75%, which is much much higher than prevailing CD rates and online savings account rates.

So, if you’re looking to get a little extra interest and are willing to deal with the hassle, I think reward checking accounts still offer a good opportunity.

Revisiting Reward Checking Accounts from personal finance blog Bargaineering.com.