How to Get the Most from Your Savings Account by Using Short-Term CD's

A certificate of Deposit (CD) can offer a better Return On Investment (ROI) than a savings or money market account; but how can you get this without locking up your savings for a substantial amount of time? I've got a surprisingly simple solution. Read on to learn more.

Instructions

Difficulty: Moderately Challenging

Things You’ll Need:

• Computer with Internet access
• Adequate funding
• 20 minutes to research each month

1. A great way to get a high yield on your cash is by placing your funds into a bank CD. However, the drawback is that you cannot have access to these funds until a pre-determined time has elapsed. In essence, you are loaning money to the bank and they pay you interest payments.
2. To find the highest yielding interest rate, go online and search for highest interest rate (or ask me). In this case, we will choose one of my favorites at Indymacbank.com. (As of today, they were offering a 5.4% rate for a 3 month CD).
3. Open your account online, and when finished fund the account with the required minimum. In this case, the 3 month minimum is $5000. If you can't afford $5000, that is no problem. Other banks offer CD's much lower than this example, but you will get a lower interest rate.
4. Here is the secret, setup the account so that you deposit $5000 on the first of each month for 3 months. Since this is a 3 month maturation rate, after you make your first 3 deposits over a period of 3 months, the first month's CD will be available for withdrawal if a financial need arises.
   
   See these examples:
   Jan 1, 2008 --> $5000.00 @ 5.4%
   Feb 1, 2008 --> $5000.00 @ 5.4%
   Mar 1, 2008 --> $5000.00 @ 5.4%
   Apr 1, 2008 --> Jan 1, 2008 funds available!!!
   May 1, 2008 --> Feb 1, 2008 funds available!!!
   Jun 1, 2008 --> Mar 1, 2008 funds available!!!
5. What do you do with the profits? If you do not require them, but want the liquidity (available cash) in case of emergencies, keep investing the original $5000 plus interest every 3 months when the CD matures.
6. To continually reinvest your funds each month, give the bank a phone call to speak to a savings manager. Tell him you would like to setup an automatic reinvestment plan that does not require any monthly maintenance from you. They will take care of the automated processes themselves, and you can sit back with peace of mind without messing around with more paperwork.

Tips & Warnings

• If you are not computer savvy or inexperienced in finding this type of information, just leave a comment and I'll find it for you.
• Keep a look out for savings or CD rate information at your current bank. If the rates are below what is available online, transfer a large portion of it to a bank that gives you larger profits.
• CD's do carry a penalty for early withdrawal. So if you invest in a 3 month CD similar to this example, you could face a financial penalty. This varies between banks, so plan accordingly to avoid this fee.