4.25% CD/Savings Account and a 3-year 5% CD

SalemFive Bank is offering a 9 Month No Penalty CD at 4.25% APY. Unlike most CDs, you have the option to close the account without penalty after 6 days. So like a savings account, it doesn't lock in your money. However, like a typical CD, you can't make additional deposits. If you need the money or see a better deal, you have to close the entire CD. You can't make partial withdrawals. This seems like the perfect mix between a CD and savings account.

Another interesting product being offered by SalemFive is a 5% 3-year CD. The best 3-year CD that I could find elsewhere today is 4.73% at GMAC Bank. But there is a catch with this SalemFive 5% CD. It's a callable CD.

This callable CD gives the bank the right to call or cancel the term of the account before the maturity date. For this 3-year CD, the earliest they can call it is just over 1 year after the start date. After that date, every 3 months they have the option to call it.

Callable CDs are definitely bad deals when rates are likely to fall. In those cases you want to lock in current rates. However, if rates continue to rise over the next few years, you might be happy if the bank calls before maturity. At that time, you'll likely be able to get CDs yielding over 5%. The risk is that rates will eventually decline and the bank will then call the CD. But if that happens two years from now, you might be better off with this 5% 3-year CD than a 4.73% 3-year CD that continues for another year. Of course, shorter term CDs and the I Bond may be better investments in today's rising interest rate environment.

One more interesting thing about SalemFive Bank is that it provides DIF insurance above what FDIC covers. DIF stands for Depositors Insurance Fund and is only offered by Massachusetts-chartered savings banks. FDIC combined with DIF protects deposits above $100K without any limits. This SalemFive page gives some history of DIF:

The DIF was established by the Massachusetts legislature in 1932 and started insuring deposits in 1934. Today, the DIF is a private insurer covering over $7 billion of depositors' funds in excess of the FDIC limit, in over 100 Massachusetts chartered savings banks.

The page also provides some historical examples showing the safety of DIF.

Even though SalemFive is a Massachusetts bank, it appears anyone in the US can join. However, they don't seem to offer the ACH linking capability that allows easy money transfer from your checking accout. The only types of electronic deposit that I see in their FAQ are wire transfers and direct deposit.