Dedicated to Deposits: Deals, Data, and Discussion

Installment Savings Account with Rates of up to 5.39% at Pacific City Bank - Los Angeles Area Only

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Pacific City Bank
Here's another installment savings account. Pacific City Bank's version of this is called the Plus Installment Savings. Instead of making one initial deposit, you agree to monthly deposits. At maturity, the balance equals the sum of all the deposits plus the accrued interest. When you open the account, you specify the maturity balance (the contract amount). The Plus Installment Savings account rates listed at the bank's website as of 3/24/09 include:
  • 3.30% APY 12 and 18 months
  • 3.82% APY 24 months
  • 4.34% APY 30 months
  • 4.86% APY 48 months
  • 5.23% APY 60 months
  • 5.39% APY 72 months
These rates require that the monthly deposits be auto-transferred from another Pacific City Bank account. Otherwise, the rates are 0.75% lower. Some important features include:
  • Interest rate in effect at account opening will be paid until maturity
  • Interest will be compounded daily and credited quarterly
  • Minimum contract amount $1,000. Contract amount can increase in multiples of $1,000 with no maximum.
  • Minimum opening balance is the first month installment
  • Early withdrawal penalty is 3 months of interest on the amount withdrawn.
One example they give is a contract amount of $10,000 and a monthly payment of $818.74 for a 12-month term. Without earning any interest, the 12 payments would equal $9,824.88. Adding the interest earned from a 3.30% APY would add another $175.12 to make the maturity balance equal to $10,000.

According to the banking rep, a branch visit is required to open an account. Branches are located in Los Angeles, Artesia, Rowland Heights, Torrance and Buena Park, California.

Pacific City Bank has some fairly strong ratings for safety and soundness: 3.5 stars (good) at BauerFinancial (based on 12/31/08 data) and 4 stars (sound) at Bankrate.com (based on 9/30/08 data). The bank has been FDIC insured since 2003 (FDIC Certificate # 57463).

Thanks to the reader who mentioned this account in the comments.

Why Are Installment Savings Account Rates So High?

This is the third installment savings accounts that I've posted on this week, and all three have rates much higher than most regular savings account and CD rates. As in the case of Pacific City Bank, the top rate requires that you maintain a checking or regular savings account at the bank for the entire term of the installment account. Otherwise, you won't be able to make the installments, and the rates will no longer be guaranteed. That also forces you to maintain an adequate balance in the other account to prevent overdrafts. Those other accounts will likely have much lower rates so you'll lose some interest before the installments are debited. Also, the bank probably anticipates that a certain percentage of customers won't be able to maintain all of the installments. These factors are some reasons that the banks may be able to pay the high interest rate on these accounts.

Online savings accounts that allow automatic monthly transfers would come in handy. This would allow you to keep most of your money in the high yield online savings account without having to worry about missing an installment.

I've created a new installment savings label so you can view all of the previous accounts from this installment savings account page.
  Tags: Pacific City Bank, California

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Comments
12 comments.
Comment #1 by Anonymous posted on
Anonymous
I sent you this rate info primarily because it suggests that Korean-oriented banks in the Los Angeles area are in some sort of a mini rate war.

I am deeply skeptical that installment savings accounts will be executed without abuse to the customers. After all, it may take only one allegedly late installment payment to create a great deal of customer grief.

I have had no past problems with Pacific City Bank, with whom I have had a relationship for a few years. Nonetheless, the installment savings format creates a lot of opportunities for problems that simply don't exist in pay-up-front CD's.

Always check whether banks are actually paying you the interest rate they promise. I have had difficulties recently with Nara Bank, which I am trying to resolve--as actual interest payments have not matched the contracted rates. (In some cases interest payments have been too high--suggesting that later retroactive accounting corrections could cause unpleasant surprises for a customer. In other cases I believe they are clearly paying below the promised scheduled payments.)

In my opinion, long maturities are now a fool's game, unless early withdrawal penalties cannot later be "adjusted."

Another bank recently just unilaterally withdrew the contractual "add-on" provisions to some of their CD's. I guess they didn't want to pay the 5.40% APY listed in certain of their CD contracts.

Don't trust any bank beyond the FDIC guarantees--which I still believe will be honored by the U.S. government.

Thank you for your truly excellent blog.

1
Comment #2 by Anonymous posted on
Anonymous
The previous post should have said Hanmi Bank rather than Nara Bank.

1
Comment #3 by Anonymous posted on
Anonymous
Please remove my previous two comments, even though I believe them to be true, considered together.

1
Comment #4 by Anonymous posted on
Anonymous
"I am deeply skeptical that installment savings accounts will be executed without abuse to the customers."

There is NO ABUSE to customers as long as all the details of the account are revealed, which they are, before the customer opens the account.

No different than a home owner agreeing to the terms of an ARM and then crying foul when their interest rate and mortage payment dramatically increase at some time in the future. It's not the banks fault.

1
Comment #5 by Anonymous posted on
Anonymous
I opened one of the Hanmi flex-CDs. Since they don't send statements, how do you know they weren't crediting the correct interest? I'm not doubting you.

1
Comment #6 by Anonymous posted on
Anonymous
Hi, has anyone opened one these accounts? Spoke to CSR, she stated that you could start the account with any amount and they would be paying interest on the opening balance. Just seems strange (5.23% for a 5 year term). Also, stated that they always had this product. Appreciate any feed back. thank you in advance

1
Comment #7 by Anonymous posted on
Anonymous
Regarding my previous post, what the CSR represented to me was wrong (paying interest on any opening balance).

1
Comment #8 by Anonymous posted on
Anonymous
Responding to Anonymous at 5:05 AM:

I discovered the incorrect payment of interest by Hanmi Bank by checking my accounts there on-line. The underpayment was approximately $40 (over the period of one month).

Hanmi Bank has agreed there is a problem, and is working to correct it.

As to installment savings accounts, the risk is that a single payment might be delayed in the mail--and that the benefits of high interest rates could therefore be lost. For a five year account at the 5%+ interest rate, I don't want to bet that all 60 installment payments will be received and processed on time. Also, I don't want to take cash payments to the bank every month to avoid that risk.

1
Comment #9 by Anonymous posted on
Anonymous
Thanks anon @ 5:37pm. I didn't know I could check my account online. I did get a statement when I went to deposit some additional funds, but I didn't check the yield.

I agree with you that the Installment Savings Account is not worth the risk of fouling it all up. I'm betting they are banking (pun intended) on people leaving $5-10k in their no- or low-yield savings account.

5+% looks good, but for 6 years? All lot of pundits are predicting raging inflation within a few years.

1
Comment #10 by Anonymous posted on
Anonymous
Installment savings accounts are very popular in Korea (my wife says it's THE most popular type of savings account in Korea) and have been around quite a while. So there shouldn't be a concern that this is some sort of new and untested gimmick.

Also, to avoid the vagaries of the mail system, I'd recommend setting up a regular ACH transfer. Some banks, like Hanmi, offer higher rates if you do.

1
Comment #11 by cd rate (anonymous) posted on
cd rate
I have two accounts with Citizens Bank... One is a checking account the other is a savings. I'm a freshman in college and ran in to difficulties with my living situation therefore I fell short on cash...and wasn't able to put enough in my bank account in time in order for my auto insurance to withdraw the monthly installments..

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Comment #12 by Anonymous posted on
Anonymous
Are you a student at Bovine University?

1