It has been a while since my last review of an installment savings account. As I was looking for good CD rates, I came across Pacific City Bank. I had posted on its installment savings account in 2009, and I noticed it's still listing some competitive rates for its Plus Installment Savings.
For those not familiar with installment savings account, instead of making one initial deposit like for a CD, 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). Installment savings accounts are common with banks that cater to the Korean-American community.
Below are the rates that Pacific City Bank is listing for its Plus Installment Savings account as of 10/31/2010:
- 3.05% APY 12 & 18 months
- 3.30% APY 24 months
- 3.56% APY 36 months
- 4.34% APY 48 months
- 4.86% APY 60 months
These rates require that the monthly deposits be auto-transferred from another Pacific City Bank account. Otherwise, the rates are 0.50% 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- Early withdrawal penalty is 1 months of interest on the amount withdrawn.
One example they give is a contract amount of $10,000 and a monthly payment of $819.86 for a 12-month term. Without earning any interest, the 12 payments would equal $9,838.32. Adding the interest earned from a 3.05% APY would add another $161.68 to make the maturity balance equal to $10,000.
When I last contacted Pacific City Bank, I was told 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 an overall health score at DepositAccounts.com of 4 out of 5 with a Texas Ratio of 12.12% (excellent) based on 6/30/2010 data. Please refer to our financial overview of Pacific City Bank for more details. The bank has been a FDIC member since 2003 (FDIC Certificate # 57463).
Why Are the Installment Saving Account Rates So High?
For the case of Pacific City Bank, the top rates require 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.
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.