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.

Don't Get Sidetracked By Instant Gratification

I was reminded while working out the other day of the need for instant gratification. It's part of human nature to want to see immediate results. I'm not gonna lie, it's something I struggle with on a daily basis. Hey, when I pay or work for something, I better see what I expected as fast as possible. I'm too busy/important to wait around!

Week 4 of boot camp just ended, and as I mentioned before, I'm feeling more energetic, my pants are looser, and I'm getting stronger. But when I weighed myself the other day, I gained 3 pounds. 3 friggin' pounds! Now you're probably thinking that I’m angry about nothing because it's just muscle weight. And yes, the logical part of me knows that. In fact, there's physical evidence, too. I lost about 2% body fat. But I've been working my a$$ off for a full month. It's frustrating and even slightly demoralizing to not see "results" in terms of weight loss. Why haven’t doctors/scientists/engineers figured out a way for me to be lazy, eat junk food all day, and still lose weight without any side effects? Yeah! What's up with that?

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).

Go Ahead, Live a Little and Splurge

I stumbled across the Ask the Readers section on Wisebread yesterday. What do you splurge on? They ask. Well, that’s simple enough, good food, of course! With food trucks, unique ethnic cuisine, and all of those fancy schmancy Michelin Star restaurants, the SF Bay Area attracts foodies (me included!) like a giant magnet. But the more I thought about it, the more complicated this question seems to get. Maybe I just like going on tangents or maybe there’s actually something to this. The problem with the word splurge is that it’s relative. In my current state of only have a $100 discretionary fund, almost everything can count as being extravagant. Buying lunch with friends for $12 plus transportation costs? Well, that’s 1/5 of my monthly budget spent in one (half) day! Splurging? You can say that.

But like I said, it’s all relative. These are small ticket items in my tiny budget. The things that will truly impact my finances most immediately are the big ticket items. I guess this means small gadgets, food, coffee, and occasional clothing items are out of the picture. That leaves…oh! The thing that I’ve been budgeting FOR!

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.

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%.