Wilshire State Bank continues to offer competitive rates on its
Rainbow Savings Account. This is an installment savings account in which you make equal monthly deposits during the term rather than one initial deposit like a CD. However, like a CD the rate is fixed during the term. Installment Savings Accounts are intended to help you save, and they are common among Korean-American Banks.
Below are the current rates as listed at
Wilshire State Bank's Rainbow Savings page as of
10/13/09. These rates assume you have automatic transfer from a Wilshire State Bank deposit account.
- 4.34% APY 36 months
- 4.08% APY 30 months
- 4.08% APY 24 months
- 3.82% APY 18 months
- 3.82% APY 12 months
Maximum contract amount is $100,000 per customer. There's an online application for this Rainbow account, and I've been told by the CSR that it's available nationwide. I have more details about opening this account in
my April review of Wilshire State Bank. Additional useful details are available in this
Fatwallet thread. Please contact the bank for the latest instructions for account opening.
Wilshire State Bank also has a competitive online savings account called
eLink Savings. The rate as of 10/13/09 is 1.75% APY. There's a $500 minimum balance requirement to avoid a $5 per month service fee. The account must be opened online, and it must be linked to one of the bank's checking accounts.
Readers have commented that you can use the eLink Savings account as the source of the automatic transfers that qualify for the higher rates. The nice thing about this is that you don't have to worry about losing interest as the money is transfered or sits in a checking account. The only issue is that you must also have a checking account, and all the qualifying checking accounts have minimum balance requirements. The best one would be the
Regular Checking Account that requires only $500 to avoid a $7/month fee.
Comparison with CD RatesSince the installment savings account is different than a regular savings account or a CD, it's a little difficult to compare rates. An installment savings account that has higher rates than a CD with a comparable maturity doesn't necessarily mean you'll do better with the installment savings account. The important thing to remember with the installment savings account is that you only have a small amount of the deposit earning interest during the initial part of the term. Each month, additional deposits are made to grow the principal and more interest will be earned.
A quick rule of thumb to determine the total interest earned is to divide the principal by two and multiple this with the interest rate to determine the total interest earned.
If you have a lump sum that you want to invest in a CD, the alternative is to use an installment savings account and a regular savings account. Most of the initial deposit would go into the regular savings account. Each month the installment would be debited from this regular savings account. So you would earn interest from both the installment savings account and the regular savings account.
I did another spreadsheet that is similar to the one I did
in May with new rates for today. In the spreadsheet I assume one has $9,800 to invest into a 12-month CD. Instead of a CD, one invests that amount into Wilshire State Bank's eLink Savings account and the Rainbow Savings account. Each month the installment is debited from the eLink and is deposited into the Rainbow account. At the end of the 12 months, the Rainbow account has a total of about $10,000 (the contract amount). The eLink account was also earning interest. So the total interest in the eLink account would be added to the contract amount of the Rainbow account to derive a CD-equivalent return.
I came up with another quick rule of thumb, and that is to take the average of the installment savings account rate and the regular savings account rate. For this example, it would come out to be just under 2.80% which is a little less than what I calculated with the spreadsheet.
There are a few factors that could reduce your return in this combined installment and regular savings account. First, it assumes the regular savings account rate will remain the same during the term. As we've learned this year, this is probably not a safe assumption. Second, it doesn't take into consideration minimum balance requirements to avoid monthly fees. Third, it assumes that the money is always earning interest. There may be some periods of time during the transfers in which your money isn't earning interest.
Based on my calculations, I've calculated the following APYs which assume you have both the Rainbow Savings Account with the APYs above and the eLink Savings account with a 1.75% APY for the entire term.
- 3.06% APY 36 month
- 2.93% APY 30 months
- 2.94% APY 24 months
- 2.83% APY 18 months
- 2.86% APY 12 months
As you can see, the rates for the shorter terms are much higher than current CD rates with comparable terms. The spreadsheet with the detailed interest calculations for a 12-month term is shown below.
Overview of Wilshire State BankYou can also open the Rainbow Savings account at a Wilshire State Branch.
Branches are located in Southern California, New York, New Jersey and Dallas, Texas.
The bank's ratings for safety and soundness continue to be strong: 4 stars (excellent) at
BauerFinancial and 4 stars (sound) at
Bankrate.com. Both ratings are based on 6/30/09 data. The bank has been a FDIC member since 1980 (
FDIC Certificate # 23301).
Other Installment Savings AccountsMost banks that offer installment savings accounts require a branch visit. One is Hanmi Bank in California which continues to offer very competitive rates on its installment savings account (
see account review). To find other installment savings accounts, refer to my
Installment Savings Account Page. Be sure to check with the bank for the latest rates. If you've found any other bank offering an installment savings account, please leave a comment.
