Dedicated to Deposits: Deals, Data, and Discussion
Featured Savings Rates
Featured Accounts

# Installment Savings Accounts?

Tuesday, November 2, 2010 - 5:05 PM
Several banks' insallment savings accounts are reasonable rates for the duration they are offered.  The problem being the lag time of placing money into the accounts.

As a hypothesis, considering using installment  savings accounts in a method I am calling a cascade CD.   The purpose is to invest a given sum of money as quickly as possible.  This would involve opening a 36 months, 30 months, 24 months, 18 months, and 12 months installment savings accounts.

As I have it structured now, all the funds would be invested at the end of twelve months.  As a CD reached its maturity, it would fund the cascade for the next 6 month period.  For example , the 12 month CD would pay all the installments due from months 13-17 for each of the remaining four CDs .  Then , the 18 month CD would pay all the installments due from months 19-23 for each of the remaining three CDs.

This particular structure would, also, require the use of a "high-yield"  liquid account.  ( I apologize for what appears to be an oxymoron at this time in the investing cycle.)  Unless one was able to establish six parallel cascades each a month apart.

Any comments, suggestions, or alternative structures are solicited.
6
Avocat1 posts since
Nov 2, 2010
Rep Points: 6
1. Tuesday, November 2, 2010 - 7:55 PM
Thank you for a thought-provoking exercise.

From a mechanical perspective, the cascade works as you wish provided the relationship among the monthly contribution amounts for the 5 CDs is as follows:

Monthly contribution amount for 18 month CD:  A

Monthly contribution amount for 12 month CD:  2A

Monthly contribution amount for 24 month CD:  .6A

Monthly contribution amount for 30 month CD:  .4A

Monthly contribution amount for 36 month CD:  2A

So, if you have an 18 month installment CD with installments of \$1000, a 12-mo with installments of 2000, a 24-month with installments of 600, a 30-month w installments of 400 and a 36-month with installments of 2000, everything works out as you have outlined.  Your total outlay over the first 12 months would be 72000 and from then on the cascade would take over.

As far as the use of installment CDs, my only reservation would be that their rate typically looks good, but works out to be about ½ what is stated, since the money is deposited in installments.  Ken had an interesting discussion on this some time ago, which you may want to consider if you haven’t already done so.

I would be interested to know what you decide – and of course if  you have found great rates on installment CDs please share!
5
pearlbrown1,489 posts since
Nov 2, 2010
Rep Points: 6,472
2. Tuesday, November 2, 2010 - 8:31 PM
I should add that the calculations of the monthly amounts do not take into account the interest earned on the CD, so it's possible you might at some point have to contribute just a bit more out of your pocket, but I cannot imagine it would be a lot - and I am sure you would be keeping an eye on the cascade.
3
pearlbrown1,489 posts since
Nov 2, 2010
Rep Points: 6,472
3. Friday, November 5, 2010 - 8:21 AM
I opened a few accounts for the longest term with the highest rate at Nara bank that at the time had no upper limit and no closure penalty after 6 mos.  After I run out of money, I plan to close one of the accounts and continue depositing the freed money into the remaining ones, etc...  Unfortunately, the bank suspended opening new installment accounts to determine new rates.  They weren't incredibly high then (3.56% for 36 mos), and I imagine they will be significantly lower now.
4
mariafalter57 posts since
Jun 6, 2010
Rep Points: 222