Money Blue Book

When most people think of ETrade, the popular online discount brokerage firm with the cutesy talking baby commercials probably comes to mind. Since 2000, E-Trade has been well known for its slew of strange, but memorably funny TV commercials, starting with its series of odd-ball Superbowl monkey commercials in 1999 and 2000. Who can forget the grand daddy of them all – the one with a monkey dancing a jig on an upside down bucket for a quarter of a minute with two old fellas on rocking chairs clapping away to some goofy Latin beat – followed by the message “Well we just wasted 2 million bucks. What are you doing with your money?” While the message might have been a bit lost in the commercial’s zaniness, it certainly was good for future brand name recognition.

Since its days as a leader in the do-it-yourself stock investing movement, E-Trade has grown and developed itself into a full service financial holding company with a wide array of banking and trading related services. Eager to shed and change its old image as merely a low cost discount broker, the company has  jumped into the online banking business. Hoping to change the public’s perception, E-Trade has heavily promoted its rapidly growing online savings and checking products in an attempt to leverage its established reputation as one of the best brokers into a similar position in the online banking market. Despite the presence of formidable competing online banks like ING Direct, HSBC Direct, and FNBO Direct, E-Trade seems to have thrived and undergone quite a transformation. Today, it’s not only one of the most popular discount brokers in the market, it’s also one of the best online bank options in terms of interest rate and website features.

The Combined E-Trade Savings Bank and Discount Broker Company Offers One-Stop Shopping For All Of Your Banking and Trading Needs

Today, not only can E-Trade customers buy, sell, and trade stocks, options, and mutual funds via its highly sophisticated electronic trading website, ETrade customers can also take advantage of a wealth of lending and bank deposit products like high interest checking, high yield savings accounts, certificate of deposits (CD’s), and even E-Trade branded reward credit cards. Because of its strong beginnings and expertise in the brokerage business (voted by SmartMoney as 2008’s best discount broker and a top 10 winner according to Barron’s 2008 online broker survey), E-Trade has also been able to successfully integrate its online broker and banking business together into a fairly seamless one stop full service financial platform for its customers – an important feature that is lacking and not always available with other online banks.

After much development, Etrade’s current banking centerpiece is comprised of two primary high interest bearing banking products:

• The high APY rate yielding Max Rate Checking Account
• And the high interest Complete Savings Account

ETrade Bank Offers High Interest Rates, and Fast Electronic Fund Transfers Between Banks, Brokers, and External Accounts

One of the combined E-Trade company’s most attractive key features is its consistently high interest rate offers. While the company does have a few banking and brokerage branches scattered throughout numerous states in the United States, E-Trade has always been primarily an online institution. Because of its website presence and ability to maintain substantially lower overhead costs compared to most traditional banks with regular branches, E-Trade has been able to pass on the cost savings to its customers in the way of consistently high annual percentage yields (APY) on its line up of checking deposits and savings accounts.

E-Trade Bank’s other strong feature is its well known ability to offer fast transfers. ETrade currently features on its online website the Free Quick Transfer service, an improved way for customers to make one click electronic fund transfers from one linked account to another without having to go through numerous pages of clicks. Electronic transfers between Etrade bank and Etrade broker accounts are instantaneous (a great advantage for those that use Etrade for both banking and stock trading). Banking customers also have the ability to link up all of their online financial accounts with their E-Trade platform, and transfer money around quickly as needed via ACH transfers at a comparatively rapid speed.

Opening and Funding An E-Trade Banking Account Is Quick and Easy, and Involves Only A Harmless Soft Credit Check

ETrade Bank offers a quick account opening process with minimal paperwork. Other than the nice welcome package you’ll receive via snail mail after getting your accounts approved, everything is done online. After clicking through the online application for your desired checking or savings account option, you’ll be required to verify your identity through a soft credit pull that is performed on your credit report. Fear not, the credit check is a soft inquiry for ID purposes and has no negative effect on your FICO credit score.

1) E-Trade Max Rate Complete Savings Account

After taking a look the interest rate offers promoted by other banks, I do not doubt E-Trade’s marketing claim that the APY interest rates of its Complete Savings Account has consistently stayed more than 8 times the national average APY for savings accounts. Its interest rate levels have indeed consistently remained one of the best deals out there for those seeking the best rate of return for their conservative assets. It is also interesting to note that the E-Trade Complete Savings Account has no account fees, no maintenance charges, and no minimum balance requirement to earn interest. The initial deposit requirement is only $1, something I think most of us can easily afford. All savings (and checking) deposits are also fully FDIC insured, up to the current federal coverage limit of $250,000.

2) E-Trade Max Rate Checking Account

As E-trade aptly puts it, the online bank’s Max Rate Checking Account is checking on steroids – due to its overabundance of account benefits. You can apply for the standard checking option, but if you want the most bang for your checking buck, you should select the Max Rate Checking offer when applying. Not only does its checking account offer a notable interest rate on checking deposits (something almost unheard of among most traditional brick and mortar banks like Bank of America or Citibank), its Max Rate Checking APY is more than 10 times the national average according to Etrade sources.

Its checking account perks include no ATM fees at any machine, at any bank, or anywhere nationwide, via (get this) unlimited ATM fee refunds. Max Rate Checking customers also receive unlimited check writing privileges, online check deposit images (so you don’t have to fumble with canceled paper checks), payment alerts, and free online bill pay reporting services. Free quick one click electronic transfers among verified and linked external financial accounts are offered as well.

While all checking deposits will earn the standard interest rate regardless of how much you have deposited, to receive the highest interest rate level requires a minimum balance of $5,000. A minimum checking balance of $5,000 is required to bypass the monthly $15 fee, but there are many ways to have this minimum balance requirement waived. By signing up for direct deposit of at least $200 a month, linking up your ETrade discount broker account with your bank accounts to maintain at least a totalof $50,000, or executing at least 30 stock trades per quarter, you can avoid the hassles of checking account minimums (which is how I personally have my monthly fee automatically waived every month with E-Trade).

Extra Information and Resource:

• ETrade ABA/Routing Number for direct deposits and ACH transfers: 256072691

Since 2000, Everbank has quietly grown and emerged as a top tier banking institution, offering a diversified array of full service online banking products that include mortgage loans, high yield savings accounts, money markets, high interest certificate of deposit (CD)  products, and most intriguing of all, high interest checking accounts. While not as well known as popular online banks like ING Direct, HSBC Direct, or even E-Trade Savings Bank, EverBank has steadily grown to become one of the top online high yield savings banks in the market (reviews shared by several news sources such as CNN Money). Because the online bank apparently did not dabble in toxic subprime mortgages, the company is in a much stronger position today than many of its competing rival banks.

About a year ago, I opened an Ever Bank savings and checking account for review purposes and have been generally pleased with the annual percentage yield (APY) interest rates I’ve received over many months. Consistent with its marketing pledge to stay among the top 5% of savings banks in terms of interest rate, I’m pretty pleased to say upon examination of its past, that EverBank has stayed true to its word over the last few years. Despite market fluctuations in bank interest rates, EverBank has remained one of the top banking choices for those seeking the highest FDIC insured rates of return for their savings and investments. This is not to say that EverBank is the absolute best online bank out there, but it’s certainly one that consumers should consider when evaluating their options. At the very least, those interested in checking accounts in particular that earn a pretty high interest rate (an extreme rarity among other banks) or those interested in alternative savings options like foreign currency denominated CD’s should take a look at EverBank and its sister discount broker firm, EverTrade Direct Brokerage.

Those weary about the safety of their money and investments in this day and age of failing banks need not worry. All Everbank checking, savings, high yield savings, money market accounts, and CD deposit banking products are fully protected by FDIC insurance coverage up to the full $250,000 limit.

Ever Bank ’s Promotional Interest Rate Offer For High Yield Checking, and High Interest Savings/Money Market Accounts

For both its FreeNet Checking and Yield Pledge Money Market accounts, EverBank offers an exceedingly high 3 month introductory interest rate for new customers and a competitive rate thereafter that vastly exceeds many interest rate deals by competing banks. For example, back when the best interest rates offered by other online savings banks were around the mid to low 3% range, EverBank’s bonus rate was a high 4.75% and a strong 3.50% after the promotional period. Needless to say, Everbank’s strongest banking appeal is its historically high interest rate yields on deposit accounts.

Process Of Opening An Everbank Checking Or Money Market Account Online

1. Online Application Is Partly Paper Driven – Your EverBank FreeNet Checking, Yield Pledge Money Market, or CD deposit accounts can be applied for and opened online, but you’ll need to mail in your signed application and some printed out paperwork to finalize your accounts. Some find the application process annoying, but I personally find it fairly routine. To me it’s just the one time initial leg work required to set up an account with the potential to earn a great rate thereafter. Those worried about losing their attractive high yield interest rates while the bank account application is pending have nothing to worry about – you get to lock in the interest rate at the time your dated application is mailed. Hopefully as EverBank ramps up and improves its online website access, the application process and ACH funding option will become entirely online driven, rather than having to utilize manually mailed in paper applications with paper checks for initial deposits.
2. Harmless Soft Credit Pull - EverBank no longer performs a hard credit check that hurts your FICO credit score, but instead now performs a soft credit check on all banking applications primarily to confirm ID. On its website, Everbank indicates that it does perform a credit inquiry for the purposes of opening an account, and that while such an inquiry will show on your credit report, it’s coded differently than an inquiry for a loan and would have less of an impact on your credit score. Thus, the soft pull will show up on your credit report, but should fall under the same section as harmless credit inquiries such as the ones banks frequently make for credit card pre-approval purposes.

EverBank’s Free Net Checking Account (With High Interest Yield)

To open an Everbank FreeNet Checking account, you’ll need a $1,500 initial funding deposit, but there is no requirement that you maintain a minimum balance to earn interest and there is no monthly fee. With EverBank checking, you will also receive the usual checking perks like free online and mobile banking, free Visa check card, unlimited check writing, no Everbank affiliated ATM fees, free $6 per month ATM reimbursement, free overdraft protection, and optional online bill pay. While all of the services are otherwise free with no monthly fee, if you want to utilize the online bill pay service, you’ll need to  maintain a minimum account balance of at least $1,500, otherwise there is a small monthly charge of $4.95.

EverBank’s YieldPledge Money Market Account and CD’s

To open an EverBank Yield Pledge Money Market Account, you’ll need a low $1,500 initial funding deposit. There is no minimum balance requirement to earn the highest savings interest rate, but there is a monthly maintenance fee of $4.95 if accounts do not maintain the $1,500 amount. Other than that, EverBank offers an account aggregation service that allows you to link up your various financial accounts and transfer money around freely via free online and mobile banking. Those interested in different alternative account options also have several possibilities including custodial (for minor children), non profit, and trust accounts.

Other than the standard high yielding array of CD savings options with its time delineated variations, Everbank also offers high value CD investment options called Insured Advantage CD’s through the CDARS network (which is a network of member banks that allows for much higher protections for CD investments than that afforded by the FDIC alone). Currently, EverBank provides the peace of mind of FDIC insured protection of up to $50 million for these special deposit.

International CD’s and Foreign Currency Deposit Accounts

Everbank not only offers a broad selection of high yielding CD’s in U.S. currency, most interestingly, it also offers them in foreign currency denominations as well through its WorldCurrency program. It’s one of the full service perks that seems to set the company apart from other online savings banks. As indicated on the EverBank website, those that seek to diversify one’s portfolio globally may want to consider foreign currencies as a beneficial addition. Everbank’s WorldCurrency CD deposits allow you to earn interest in the foreign exchange currency of your choice and enjoy the currency appreciation benefits against the U.S. dollar.

Those worried about potential dollar inflation or the weakening value of the dollar may want to consider Ever Bank’s World Currency CD’s, however, it’s important to bear in mind that while FDIC insurance fully protects all CD and savings deposits from bank failure loss, it doesn’t shield you from the dangers of currency depreciation in the event your selected international currency depreciates against the dollar. Foreign currency CD’s are an interesting way to hedge against and profit from currency fluctuations and pricing risk, but you should view them as much riskier than traditional bank deposits. Those that want to diversify their investment and deposit options further can also invest in gold or silver through EverBank’s fully diversified array of non FDIC insured precious metal accounts. It’s an alternative way to further diversify your financial portfolio.

Extra Information and Resource

• EverBank ABA/Routing Number for direct deposits and ACH transfers: 063092110

I’m a credit card arbitrage seeker, which means I enjoy looking for creative ways to make an extra buck by legally exploiting the existence of attractive credit card rewards and 0% APR credit card offers in the marketplace. One of the ways I used to make some extra money on the side was by applying for introductory 0% balance transfer credit card offers and depositing the interest free funds into high yield savings accounts to earn some passive interest income. While the most lucrative 12 month, no balance transfer fee promotions have dwindled as a result of the ongoing economic slump and worsening credit crisis, there are still creative ways available for savvy credit card arbitragers to profit from.

As with all credit card arbitrage type activity, the decision to partake or not requires that you weigh the potential payoff against the risks and effort involved. While some people may shrug off such activity as a waste of time and not worth the potential rewards, others see it as a relatively effortless way to earn some free credit card rebates that they’d otherwise not have. I tend to adopt the latter viewpoint, regarding credit card arbitrage and interest rate pursuits as integral facets of my financially frugal lifestyle. Personally, I don’t mind taking advantage of effortless free money opportunities as they present themselves, so long as the application or management process is not too onerous or prohibitive.

Of course, there will always be naysayers who cite such activity as a complete boring waste of time. But frankly, if $100 or $200 worth of rewards is small pocket change to you, I supposed it begs the question as to why you are even reading this personal finance blog to begin with when you ought to be sitting on some tropical beach resort with a martini in your hand and tended to by bikini clad beauties (or the male equivalents if that’s your thing).

Open Your New Bank Deposit Account With A Reward Credit Card To Earn Free Credit Card Rewards, Or Use A 0% Purchase Card To Get An Interest Free Credit Card Loan

While certainly not as lucrative or easy to fully manipulate on a massive scale as balance transfer credit card arbitrage, one relatively new way to take advantage of arbitrage rewards is to use a reward credit card to open and fund a new checking or savings account to earn free cash back, reward points, or airline miles. When you open a new checking or savings account pursuant to some promotional bank offer and have to transfer in money for the first time, certain banks permit you to initially fund the account using a credit card. Oftentimes, the card transaction goes down as a credit card purchase, allowing the cardholder to earn free instant rewards, rebates, or whatever purchase incentives the credit card offered. For those interested in earning credit card arbitrage income through the use of interest free credit card loans, funding the new bank account with 0% credit cards that offer introductory zero percent rates on all new purchases is another interesting option to consider in lieu of credit card rewards.

Before funding a new bank account with a credit card, here are a few very important factors to consider:

1. The funding limits imposed by the bank where the new checking or savings account is being opened at – some banks limit the amount of the initial deposit that you can charge onto a credit card. The credit card funding limit can range anywhere from $1,000 to an unlimited amount, capped only by your credit card’s maximum spending limit.
2. Whether the bank will treat your reward credit card funding transaction as a purchase (preferable) or as a cash advance (deal breaker). This factor is critical because you will only be able to earn credit card rewards if the initial fund transfer’s treated as a purchase. If the transaction’s recorded as a cash advance, not only will you be forced to pay the high APR rate for cash advances immediately, you will earn no credit card spending rewards in the process (which defeats the whole purpose of credit card arbitrage, which is to get more back than you put in).
3. The third factor to pay attention to is whether there are any credit card issuer restrictions (Visa, Mastercard, Discover, or American Express). While some banks impose no card issuer restrictions when it comes to new checking or savings account funding, others limit the permissible cards to only just Visa or Mastercard.

Finding a bank that permits newly opened checking and savings accounts to be funded with a credit card is relatively easy. Making certain that the credit card transaction will be registered as a purchase, rather than a cash advance transaction will require a bit more digging and conversing with customer service support on your part. While the majority of funding requests via a credit card go down as purchases, a quick browse through various online forums reveals a bit of disagreement among arbitrage seekers on how the different credit card issuers are actually treating such transactions.

Ultimately, how a particular credit card transaction is treated is up to the credit card issuer and not the merchant. Thus, the bank you are opening the new checking or savings account with has little say over how the funding transaction will be treated, whether it be recorded as a purchase or a cash advance. Because of this slight ambiguity, it’s probably safer to fund newly opened bank accounts with the merchant’s own brand of credit cards. Thus for example, if you are opening up a new Citibank checking or savings account, to be on the safe side, you may be better off funding your new account with a Citi credit card as they are less likely to pull a fast one and record the transaction as a cash advance than another credit card merchant like JP Morgan Chase or Bank of America. Likewise, if you are opening a Bank of America account, you should stick with using a Bank of America credit card to fund it. This is just a precautionary measure. Of course, you can always call the bank and credit card issuer directly to confirm how the initial bank account funding will be treated.

List Of Banks That Allow New Accounts To Be Funded Using Reward Credit Cards:

1) Citibank (view Citibank offers) – Citibank does not permit new bank accounts to be funded with Discover or American Express – you’ll have to use either a Visa or Master Card. On the plus side (and this is a very tremendous plus), Citibank does not appear to impose a maximum deposit limit on the amount you can charge onto your Mastercard or Visa credit card to open your new Citibank account. Theoretically, if your reward credit card offered 1% cash back with a high spending limit of $100,000, you could pocket an instant $1,000 worth of rebates immediately – theoretically of course. Of course, you’d want to pay off the whopping balance immediately by using the new $100,000 bank balance lest you face the prospect of a $100,000 credit card bill.

2) Bank of America (view Bank of America offers) – Within the last year, I opened a new Bank of America online checking account and successfully transferred in funds using a credit card. The card I used was actually a Chase credit card, but the transaction went through without a hiccup and was duly recorded as a reward earning purchase. While there is no limitation on the type of card that may be used to fund a new BoA account, the big downside is that Bank of America limits credit card deposit requests to a measly $1,000.

3) JP Morgan Chase – Chase bank also permits applicants to fund their new Chase checking or savings accounts with a credit card. Like Bank of America, they impose a deposit transfer limit, currently capped at $2,000. It’s not a whole lot, but if you’re going to open a Chase bank account anyway, might as well use a credit card to fund it and put some free credit card rewards in your pocket in the process.

During tough times, there is always the inevitable flight to quality as investors seek out stable investment options to keep their money safe from loss. Oftentimes these safe investment choices include U.S. Treasury Bills, high interest savings, and money market accounts. However, those who want to shield their money from unnecessary risk during uncertain times but still maintain a very competitive rate of return ought to strongly consider certificate of deposits (CDs). Because CD’s are issued by banks and credit unions, they enjoy the same iron clad FDIC insurance coverage and equivalent that checking accounts and saving deposits enjoy. When you buy a certificate of deposit through a bank and choose to invest your money in a CD, you can rest easy knowing that your money is fully protected up to the full FDIC coverage limit from unexpected loss (the current FDIC limit is $250,000).

While in the long run, investing in the stock market is the best way to earn high growth returns, sometimes the market conditions and wild price swings are too much to handle for some conservative short term investors. Especially for those you looking to preserve your capital and build up emergency fund savings within a short time frame, you may be more comfortable investing your money in a predictable interest bearing asset, like a high yield savings account or a CD. While I frequently solicit the use of safe investments for specialized purposes, I’m still an active bank interest rate chaser at heart – a person who constantly seeks out the best ways to maximize money and earn the most interest bang for one’s buck. This desire to delicately balance protection against risk but at the same time still earn the highest interest rate is how I stumbled upon the use of CDs and CD ladders.

What Is A Certificate Of Deposit (CD) and How Do I Buy It?

A certificate of deposit, or a CD as it’s most commonly called, is an interest bearing fixed time asset offered to consumers and businesses by banks and credit unions. When you buy a CD through a bank, you transfer money into the CD savings account for a fixed amount of time and agree not to withdraw the amount until the time period matures or expires. Upon maturation, you are free to pull your money out along with the accrued interest and decide whether you want to roll it over into another CD or walk away.

The available time periods for CD’s vary from bank to bank, but usually they are offered for periods of 3 months, 6 months, 9 months, and so forth, up to as long as 5 years. However, some banks are extremely flexible and offer CD’s for time periods as short as 1 month. While many banks require a minimum deposit to buy a fixed interest rate CD, some major banks have done away with minimum deposits, and customers are now free to buy a CD for as little as $5 (seems kind of silly to do that though). However, keep in mind that the best CD rates tend to be reserved for CD deposits that have very high minimums – called jumbo CDs, which usually require minimum balances in excess of $100,000.

Buying a CD is pretty straight forward – you can buy them commission-free from most banks and credit unions. For starters, you may want to check out your local credit unions or community banks for the best CD rates. Oftentimes, locally run institutions and online banks tend to offer higher rates for their CDs than more established brick and mortar brand name banks like Citibank, Bank of America, or JP Morgan Chase. Those who prefer online banking may want to consider buying their CDs through popular online banks like ING Direct. ING has been around for a while and has made setting up CD ladders incredibly easy. With just a few keystrokes, an ING Direct CD ladder can be set up simply by selecting the monetary amounts and time periods desired.

Deciding when to purchase and which time period to pursue requires a bit more planning. While market prices and interest rates can never be fully timed with any real precision, there are still generally applicable rules of thumb when pursuing a CD purchasing strategy. If it’s your determination that bank interest rates are very high and appears to be overinflated (prepped to drop in the near future), then it’s in your best interest to purchase a CD through your bank and lock in that high interest rate today for as long as possible. On the flip side, if it’s your current estimation that interest rates are rather low and undervalued (prepped to rise in the near future), you’ll want to be more cautious in locking up your money for extended periods of time. You don’t want to lock up your money in a multi-year CD for something like 3.5% annual percentage yield (APY) and later have to watch helplessly as interest rates soar to 4.5%, and not be able to pursue the higher rates until the CD matures.

Why Buy Or Invest Money In A CD? Why Not Just Keep My Money In A High Yield Savings Account?

As we all know, banks make money by taking our bank deposits and loaning the money out to other consumers and businesses for profit. In return, the bank offers checking and savings account holders an interest rate as compensation for allowing the bank to use their money as loans for other people. Banks love the concept of CDs because it allows them to maintain a more stable and higher balance of cash on hand to loan to others. In return for your agreement not to touch the CD money for the agreed upon period of time, the bank is willing to provide you a higher interest rate for your CD deposit than that offered to traditional checking and savings account deposits. The higher interest rate is to compensate you for the loss of liquidity, which pertains to your ability to utilize your monetary assets as you wish.

In general, the longer you agree not to touch the CD deposit, the higher the rate of return the bank will offer you. Thus, the interest rate offered by your bank for a 5 year CD will almost definitely be much higher than that for a mere 3 month CD deposit. This is the reason why savvy savers, who are not in immediate need of cash, should not merely keep all of their money stashed away in checking or savings accounts. In almost all cases, CDs offer APY interest rates that are frequently 1 to 2 percentage points higher than the best best high yield savings accounts. For example, currently as of the date of this writing – ING Direct is offering 3.00% APY for their popular high interest Orange savings account (a very good savings rate at this time). However in comparison – their 6 month CDs currently have yields of 3.50% APY, their 12 month CD’s have yields of 4.00% APY, and their 24 month CD’s have high interest yields of 4.25%. CDs simply blow savings accounts away in the interest rate department.

Choosing between interest rate and loss of liquidity (length of duration) is the most important decision when purchasing CD’s. The more liquidity and control of your money you agree to give up, the higher the interest rate you get back in return. In the banking world, checking accounts are the most liquid of accounts as there are usually little restrictions placed on them by banks. But as a result, checking accounts routinely earn the lowest interest income, if any at all for the account holder. Lower on the liquidity scale are high yield savings accounts, which offer more attractive interest rates for deposits. However, savings accounts are constrained by the monthly 6 ACH transfer limitation. At the lowest rung of the liquidity scale are CD’s which generally offer the most attractive interest rates compared to the other two. However, they are frequently the most constrained as the funds must remain off limits until they mature.

The biggest drawback of CDs is the penalty fee you must fork over if you commit an early withdraw. Once you buy a particular CD for a fixed time period, if you withdraw the money or cash out for any reason including a personal financial emergency, you will incur a significant financial penalty – which will likely wipe out any interest income accrued, as well as cut into the principle used to fund the CD in some cases. Because there are rarely exceptions for waiving the withdrawal penalty, you must make sure you are fully comfortable and committed with having that amount of money locked up in a CD account for the agreed upon period of time before making the plunge.

Building A CD Ladder Is A Good Way To Maximize Your APY Interest Rate and Minimize Liquidity Worries

A CD ladder is simply an investment strategy used to manage CD’s that maximizes liquidity and the rate of return, while minimizing the risk and the drawbacks of locking up your investment money for an extended period of time. Laddering CDs require the account holder to initially purchase multiple CD’s with different intervals so that they ultimately mature at fixed regular intervals. By staggering multiple CD investments so that each individual CD matures at set intervals, this gives the deposit holder additional liquidity and control of the otherwise frozen money so that he or she can take advantage of rising interest rates, and still be able to chase the highest rates possible. Similar to dollar cost averaging for stock investments, CD ladders are great investment vehicles for those who want the flexibility to pursue better opportunities as they arise, but still want to maintain a predictable cash flow.

Below are two examples of how you may want to create your CD ladder system. As each individual CD investment matures you should seriously consider reinvesting in a new CD account with a term that’s equal to the longest term CD. Purchasing multiple certificate of deposits with different maturity dates enables you to take advantage of higher interest rates normally associated with longer term CDs while still ensuring frequent access to large portions of your money. By staggering your CD investments across several rungs of this CD ladder, you generally can increase the potential earnings of your CD portfolio, but still maintain some semblance of liquidity and control of your money along with the security of knowing that your money will become fully available within a relatively short time frame. Of course, should you decide to, you can always make the decision to halt the CD laddering process at the end of each individual cycle and eventually free up all of your money:

CD Ladder Example 1 – Money Is Freed Up Every 6 Months

This set up is suited for individuals comfortable with having their money locked up for 6 months or longer and looking to earn a higher rate of return in exchange. Let’s say you wanted to create a CD ladder system that frees up money every 6 months. Here is how you may want to set it up. This arrangement requires an initial one time start up CD funding of $4,000 and will last for 2 years. As always, you are free to play around with the numbers to suit your purpose and savings goals, but this should give you a general idea as to the mathematics behind CD laddering:

• Put $1,000 in a 6 month CD
• Put $1,000 in a 12 month CD
• Put $1,000 in a 18 month CD
• Put $1,000 in a 24 month CD

After you have established a CD ladder with 6 month, 12 month, 18 month and 24 month terms, when the first 6 month CD matures, you would invest the funds in a new 24 month CD. Similarly with the passage of time, when the next 12 month CD matures, you would invest the funds of that particular CD in another new 24 month CD, and continue the process for the 18 month and 24 month CDs as each subsequent CD expires. At the end of two years you’ll have four individual 24 month CDs with a new $1,000 CD maturing every six months.

CD Ladder Example 2 – Money Is Freed Up Every 3 Months

This set up is more suited for individuals with greater liquidity concerns. If you’re worried about locking up your money for periods of 6 months or more, 3 months may be more appropriate for you. Let’s say you wanted to create a CD ladder system that frees up money every 3 months. Here is how you may want to set it up. This arrangement requires an initial one time start up CD funding of $4,000 and will last for 2 years:

• Put $500 in a 3 month CD
• Put $500 in a 6 month CD
• Put $500 in a 9 month CD
• Put $500 in a 12 month CD
• Put $500 in a 15 month CD
• Put $500 in a 18 month CD
• Put $500 in a 21 month CD
• Put $500 in a 24 month CD

After you have you have established a CD ladder with 3 month, 6 month, 9 month and 12 month terms, 15 month, 18 month, 21 month and 24 month terms, when the first 3 month CD matures, you would invest the funds in a new 24 month CD. Similarly with the passage of time, when the next 6 month CD matures, you would invest the funds of that particular CD in another new 24 month CD, and continue the process down the line as each subsequent CD expires. At the end of two years you’ll have eight individual 24 month CDs with a new $500 CD maturing every 3 months, plus interest.

I know it seems quite complicated, but it really is not. By staggering your CDs through this CD ladder system, you’ll be able to ensure you always have money freeing up every fixed interval period, whether it’s every 3 months, 6 months, or even as short as a matter of a month depending on how you set it up. This allows you to use your CD deposits for emergency fund purposes if you ever need it and may even help promote a healthy and active savings habit, allowing you to meet your financial goals.