I have most of my cash in a high-yield savings account making 4.12% APY. However, in previous days when the yield curve wasn’t so flat, a technique called laddering along with certificates of deposit (CDs) was pretty popular.

For example, let’s say you had an emergency fund of $5,000. You want to keep that pretty liquid and safe, but you also don’t want it sitting there getting eaten up by inflation. So, you put $1,000 in a savings account, $1000 in a 1-Yr CD, $1000 in a 2-Yr CD, $1,000 in a 3-yr CD, and $1,000 in a 4-Yr CD. You would end up with better overall interest rate, and take an interest hit if you needed to take out more than $1,000 in a year by breaking the older CDs. Now, when the 1-Yr CD matures, you go out and buy another 4-Yr CD, keeping the ‘ladder’ intact (The old 4-Yr CD now has 3 years to go, etc). For a while, the increase in interest by doing this was not worth the loss in liquidity. Let’s check again:

I’ll use INGDirect as an example since they are OK in the interest rate department, and their CDs are very flexible since you can open them with any amount. You could make a small $600 CD ladder with their savings account and 1,2,3,4, and 5 year CD in $100 increments. There are definitely many banks with higher rates out there.

So, if you kept $5,000 in their Orange Savings Account (OSA), you’d currently get 3.40% APY, or $170 in a year.

Let’s look at if you make the following ladder with the current rates:

$1,000 OSA at 3.4% APY
$1,000 1-Yr CD at 4.2%
$1,000 2-Yr CD at 4.5%
$1,000 3-Yr CD at 4.65%
$1,000 4-Yr CD at 4.7%
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$5,000 Ladder earning 4.29% APY

That’s an increase of 0.89% annual interest. Equivalently, you’d get $214.50 in a year, an increase of $44.50 or 26%. Not bad if you do have money at ING.

Remember that you are giving up liquidity by doing this. ING charges a penalty of 6 months interest for breaked a CD with a term longer than 1 year. Be aware that if you break in less than 6 months, you’ll actually be losing money! But, it may be worth it. Now I need to see if I can find a bank with consistently high rates to open a up a ladder with better rates. It would have to be all at one bank, otherwise it’d be a pain to keep track of.

You can do alot of different things with laddering – make the time increments longer, shorter, wider apart, closer apart, and so on. Many people also use this technique with marketable bonds and savings bonds.

I guess the word has spread about the great I-Bonds rates, as is shown by this recent USA Today article. Unfortunately, this article does not help me at all, since the key to buying now or later is the upcoming fixed rate, and these two so-called experts can’t even agree on it. One says it may go down to 0.5%, the other one says 1.3-1.5%. Gee, thanks guys.

I’ve been talking a lot about I-Bonds, mostly because, for me, it’s the equivalent of a 14-month Bank CD returning 5.83% APY. You won’t see an interest rate that high anywhere else. I’ll need this money in a year and a half, so a 14-month time frame is perfect. I wouldn’t put my Emergency Savings there, unless you ladder them. For example, I have a $5,000 I-Bond bought in 2003 that I can cash out whenever if needed (but I won’t since it’ll be earning 6.82% starting in December!). Anyhow, I have:

1) Transferred money from Presidential Savings to Checking.
2) Set up my TreasuryDirect.gov Account.
3) Don’t want to cut it too close, so I’m scheduling a buy order for $5,000 in I-Bonds on 10/24, Monday. (Gonna buy more in November.)

Sounds like an informercial, huh? I feel that I’ve gotten a lot of new readers who found out about my Emigrant Direct bonus, but don’t forget there are many others for those that are new to the game:

Capital One 360 Bonus: $1 now $250 to open, $50 bonus
VirtualBank Bonus: $100 to open, $20 bonus
Emigrant Direct Bonus: $1 to open, $10 bonus*
HSBC OnlineSavings Bonus: $1 to open, $35 bonus
—
Total: $103 to open, end up with $193. Almost double your money! $90 in bonuses with $352 upfront which is still your money and earning decent interest.
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(11/5/05: This is old news, I now have plenty of referrals. Please follow the new directions for the Emigrant Direct Sign-Up Bonus.)

Ok, I’m all caught up on e-mails now. Every who wrote me their 1st & 2nd email on or before Friday 10/7 should have a reply.

Lots of referrals left, so no worries.

As of this writing, 80 referrals have been given out, so 20 are left. I will try, but I cannot guarantee that I will be able to update again promptly when they run out, so this is my official warning: You may not get in on this offer if you are not within the next 20 people to go through my link and apply and e-mail me. But you really have nothing to lose by trying either. FYI, I’ve been getting from 2-8 referrals a day.
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Bank of America has just announced a new program called Keep The Change. If you enroll, every time you buy something with a Bank of America debit card, they?ll round up your purchase to the nearest dollar amount ? and transfer the difference from your checking to your savings account. So if you buy something worth $4.57, you’ll get charged $5 to your checking account, but get the 43 cents straight into your savings account. So far, ho-hum. But, for the first 3 months, they’ll match your “change” 100% (so you’d get 86 cents in your savings), and 5% after that (45.15 cents).

Obviously, you need both checking and savings accounts at Bank of America. I do. You also need to physically walk in a branch to enroll, which I haven’t had the chance to yet. I think I will sign up and participate, but probably only for the initial 3 months and for smaller amd non-gas/grocery store/drugstore purchases.
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(Update: This is old news, I now have plenty of referrals. Please follow the new directions for the Emigrant Direct Opening Bonus Promotion.)

First, I’d like to say thanks everyone for reading and making my $10 Emigrant Direct Opening Bonus Referral program successful so far. Ok, now here are some things I need participants to read:

1. Not everyone is following the rules exactly. I need two e-mails from everyone – one when you open the account online, and another when you get the paper letter and get full online access to your account. This is to ensure an accurate count, and to make sure we don’t go over 100 without knowing and leave people out in the cold. If this happens, the people who did not follow the rules will be the ones left out instead! Otherwise, the Honor System approach seems to be doing well.
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VirtualBank is the forgotten middle-child of the online banking world. It doesn’t have the great 4.0% APY rate of Emigrant, and it doesn’t have the advertising budget of Capital One 360. It offers a relatively competitive 0.75% APY now, with no fees and minimum balances for it’s eMoney Market savings account, but is mostly ignored since it no longer stands out in the crowd. It’s only slightly unique capabilities are shorter hold times on transfers, and the ability to link 4 accounts. I still use my account to shuffle money around quickly amongst my many accounts, though. For more information, please see my VirtualBank Information and Review Page.

I knew Presidential Bank would step it up. I have the majority of my cash at there, and kept it there even in the wake of Emigrant Direct’s recent 4.0% APY interest rate. Presidential Bank’s Internet Checking Plus Account [review] now pays 4.0% APY interest. And its Premier Savings Account [review] now pays 4.12% APY. Of course, both these accounts have additional restrictions that Emigrant Direct does not have like minimum balances, but it also offers more features like check-writing and online bill paying. It works great for me, but is definitely not the best fit for everyone. Check out my Online Bank Comparison page for some side-by-side stats.

Capital One 360 is now showing 0.75% APY on their site. Hmm… a rather weak reply to Emigrant Direct’s jump to 4.0% APY if you ask me. Still, the beauty of these accounts is that you can transfer money between them as you’d like. Although I’m sure ING is relying on ‘financial inertia’ to keep some people from moving their money out, even though you can even link Emigrant Direct and Capital One 360 together now.

For more information, please see my Capital One 360 Info Page and my Online Bank Comparison which compares many of the popular online savings accounts.

After linking Capital One 360 and Emigrant Direct directly, I just checked and my $5 test transfer from ING -> Emigrant over the weekend just posted to Emigrant today, so it is officially possible to move your money from 3.30% to 4.00% with just a few clicks!

Sweet. Emigrant Direct’s American Dream Savings Account is now paying 4% APY [Info Page, Bank Review], up from 3.50% and leapfrogging basically everyone in the liquid online savings arena, including Presidential Bank’s Premier Savings Account. And I just moved over ten thousand dollars out of Emigrant in the last two months. But I don’t think the interest rate wars are over yet. Things continue to look up for savers! An arbitraged $20,000 balance transfer at 0% APR would now earn $800 a year!