CD Laddering

I wrote a post about certificate of deposit (CD) a few days ago and mentioned a strategy called “laddering.” It’s a common and effective strategy for maximizing your savings. Basically, it's splitting your money into a few groups and opening CDs with different term intervals.

Laddering is useful in two ways. For one, it's a good method to maximize interest. It also makes your assets more liquid because you have the maturity dates of the CDs staggered. The longest term CDs tend to have the best rates, but that also means your money is locked in for the longest. A 5 year CD, for example, may pay 3% in interest as oppose to 1.05% for an 18 month CD. However, interest rates could go up during that 60 month time period. By spreading your assets, you give yourself more flexibility.

How a Certificate of Deposit Works

This is the 5th post in the Bank Deposit Account 101 series.

When I first heard about "CDs" in the same sentence as banking in high school, I was super confused. Ummmm...what do compact disks have to do with saving money? If you're as puzzled as I was, don't worry, I'm pretty sure most people have the same reaction. The abbreviation actually stands for Certificate of Deposit.

A CD is a deposit account offered by banks or credit unions that usually pays out a decently good amount of interest compared to your average checking and savings account. Of course, a higher rate of return for your money comes with a catch. This kind of savings vehicle is called fixed term or time deposit, meaning that you have to keep your money in the bank for an agreed period of time. The term can range from 3 months to 5 years. In general, the longer you leave the money and the larger the principal, the higher your interest will be. Jumbo CDs, those with a minimum deposit of $100,000, receive some of the best rates out there.

Traditional vs. Online Banking

This is the 4th post in the Bank Deposit Account 101 series.

Online banking has existed since the mid-1990s, but it didn't become an established form of banking until this past decade. Due to the wide accessibility of the internet, web only banks are an increasingly popular option, especially amongst young people. So should you consider using an online bank? Below, I've highlighted the advantages of these two types of banking institutions. Read and decide for yourself which one's right for you:

Traditional
Physical location. The most obvious and important difference between a traditional bank and an online bank is the physical presence of a bricks-and-mortar bank. Not only can you see the operation, use the safe deposit box, you can talk to a teller, a financial representative or a loan officer face to face.

How to Choose a Bank Account

This is the 3rd post in the Bank Deposit Account 101 series. 

Opening up a checking or savings account is one of the most basic things you should do when you're working on building your wealth. Whether you're a student, a professional, a part time worker, etc., it is probably the most low risk option for storing your money and possibly earn some modest interest. Not only that, it should be an integral part of managing your finances by simplifying organization, and perhaps, curb your spending. I described the process of opening an account as well as the most common types of deposit accounts available in earlier posts. The following is a list of factors that play into the decision of selecting an account. Determine which of these are the most important to you in order to find an option that's fitting.

Note that this post applies to both bank and credit union accounts, but for the sake of simplicity, I'll collectively call them "bank."

Make sure your money’s safe. Safety first! The FDIC and the NCUA are government agencies that insure your money if the banking institution collapses. Currently the insured amount is up to $250,000 for members. Having this cushion means knowing that your money is protected. It's definitely better than hiding cash under a mattress!

Different Types of Deposit Accounts

This is the 2nd post in the Bank Deposit Account 101 series. 

I explained how to open a deposit account in an earlier post but didn't get to mention in detail about what sort of accounts are available. To make it up to y'all, the following is a list of the 4 most common bank deposit account types. Don't blindly pick something to throw your money into. Understanding how each one functions will hopefully help you maximize profit and minimize fees and inconvenience. This information should also be factored into the bank you ultimately decide to open your account at.

Checking Account is the most common deposit account. Like its name suggests, this type of account allows you to write checks and withdraw money easily. It is usually tied to a debit card. Because of these features, a checking account is the most liquid form of deposit accounts and, in general, does not bare interest. In the past year or so, in order to make up for loss profits from government regulations, many checking accounts require a minimum balance to avoid maintenance fee or to receive certain services.

Is Your Information Secure? Technology's Not Perfect

I've been told that for someone who works as an engineer, I'm pretty hostile towards technology. I don't like feeling like a guinea pig, so I'm rarely an early adaptor to new devices. This isn't because I'm not excited about innovation or not curious about how they work. Rather, my hostility stems from a general skepticism about how increasingly "perfect" each invention seems to become. Yes, improvements are inevitable, but I also believe that a small amount of distrust is healthy. Anyway you put it, technologies are created by humans and we are hardly perfect beings.

From my experience, during the conception of a product, there are numerous factors to be considered before it can be put into the hands of consumers (think BETA versions). Even then, mistakes or problems that haven't been considered before often come up. This can be said about almost anything: software, computers, smartphones, etc.

This is the major reason why, despite the benefit of convenience, I haven't started doing mobile banking or use online bank account consolidation/budget managing websites. Yes, you heard right. I'm pretty old school when it comes to finances. Besides online banking and one android app where I log discretionary spending, technology plays a minimal part in money handling for me. (It's pretty ironic that my credit card was still charged fraudulently a few weeks ago…)

Keeping Up With Multiple Bank Accounts

I'm kind of crazy about "free" money. Really. Whenever I get those flyers in the mail to receive bonus cash for opening an account, I get super pumped. If you remember, I even wrote a post about Chase's offers. Needless to say, when I saw a "bonus $100" for opening an account at select branches of Union Bank earlier this month, it was hard to resist. Of course, I was careful about reading the small prints to see whether I'm actually qualified and capable of not being penalized. So this past Saturday, I braved the rain and made the 20 minute drive a couple of cities over to open an account.

Up until last September, besides a 12 month CD with Citi, I banked exclusively with Bank of America. Now that I'm accumulating these accounts, I think it's time start getting more organized. I don't think it's reasonable for me to just rely on memory anymore.

Steps to Opening a Deposit Account

This is the 1st post in the Bank Deposit Account 101 series. 

It’s Valentine’s Day! So of course I’m going to bring up the extremely sexy topic of opening up a deposit account! Disagree with the sexiness of the topic? Well, let’s put it this way, a bank account (credit union, too, but for simplification, I’ll refer to everything as “bank”), if used correctly, acts as a tool to accumulate wealth. And money is super sexy. Below are some steps you will (or should) take when opening an account:

Research, Research, Reaserach! 

You can ask around to see what the best bank account is out there, but you must remember to at least look into it a little bit yourself. There are some traits to an account that everyone agrees are good, but there are also some others that have to be assessed on an individual basis. Some examples of these characteristics are: the amount you can put into the account, convenience, and the length of time you plan on keeping an account open. Be sure to consider these features carefully and weigh their importance to you before choosing a bank to open your account in. 

Once you’ve chosen a banking institution, you can proceed to opening an account. For a lot of banks, you’ll have the option of opening an account online or in person. If this is your first time opening a bank account, I suggest that you go to the bank (unless it’s an online bank without physical locations).

Low Interest? Make Up For It With (Almost) Free Money

Ever since Chase took over Washington Mutual a couple of years back, they've been expanding like crazy out here in California. Not only did they keep those original WaMu locations afloat, they opened up at least 3 locations within a 15 mile radius from me over the past few months.

Not that I'm complaining, though. I do the majority of my banking with Bank of America, which makes me an attractive target for Chase to want to steal my business away from BofA. Every once in a while, I'd get something in the mail saying they'll give me $100 or so for opening a checking account with funds from outside of Chase. There are restrictions, of course.

So What's a Credit Union Anyways?

Personal finance basics usually teach us to put our money away in a bank checking or savings account. The credit union is a less talked about alternative. Recently, though, there's been a lot of buzz surrounding it. So what exactly is a credit union?

Organization
Credit unions were originally created as a way to serve the financial needs of a specific community. These communities can be the residents of a city, the employees of a certain company, students and faculties of a school, etc. Besides being customers, the members of each credit union are also its owners. They elect a volunteer board of directors and have more say in the investment decision process because the organization's purpose is to directly benefit them.

Be Accomplished!

My last post listed some ways to get started on organizing your financial information. If you've done those things already, bravo! Here are some additional goals to set your site on when you're doing your financial planning for the year:

Pay Down Debt
Did you go all out with your Holiday shopping this past year? Are you dreading that credit card bill? That's only one of the many ways some of us end up in debt. While we can't undo what had already happened, we can certainly make it less painful. If you're in debt, chances are you're paying more in interest that your bank is paying you. Sure, the funds you invest in may earn you more, but it's not guaranteed. Moreover, some credit cards have interest rates above 20%.

Good Bye, Merrill Lynch

Back in May, I managed to save up 6 months of living expenses for an emergency fund, so I looked to open an online self-directed individual trading account to get some trading experience (and maybe some extra income). I searched for online discount brokerage firms with low fees by looking at Sharebuilders, Scottrade, E-Trade, etc. In the end, though, I settled on Merrill Lynch.

This wasn't because Merrill Lynch was ranked the highest by reports or provided the best services. The main reason was because I do a majority of my banking with Bank of America. After being bought by Bank of America in mid-2008, Merrill started advertising a $0 equity trading program pretty agressively in 2009. Of course, $0 comes with some restrictions. You need to have at least $25,000 combined in your deposit accounts at Bank of America (savings, checking, CD's, etc.) and you can only trade free for up to 30 trades. Otherwise, the price structure is based on your deposit total, with the highest fee being $8.95 per trade.