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Retirement Savings: How Much Should I Save Each Month?Why Choose CDs Instead of Reward Checking Accounts?
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POSTED
ON BY Ken Tumin
With some reward checking accounts paying 5%, it may seem like there's no reason to put any money into CDs which have rates much lower than 5%. There are still many nationwide reward checking accounts that pay around 4% APY. If you want a similar rate on a CD, you'll have to search hard and you'll have to settle for terms of at least 5 years.
For those with large balances, reward checking is problematic since most accounts cap the balance that qualifies for the top rate. However, even if you don't have a large balance, there is one issue to consider. There's no guarantee that reward checking rates will hold up. I hope they do, but as we've seen this year, rates have fallen.
Back in the second half of 2007 State Bank of Toledo was offering a nationwide reward checking account with a 6% APY with no balance cap. During that time, Pentagon Federal Credit Union came out with 6% long-term CDs. Some asked why lock your money into a CD when you could get the same rate in a liquid account. Two and a half years later, State Bank of Toledo's reward checking rate is down to 2.51% APY for balances up to $70K.
No one knows how rates will change in the future. Using CD ladders is a way to hedge your bets for both future high and low rates. So I'm not giving up on long-term CDs even in this current interest rate environment.
One other interesting note about 2007 is that this was the year that FNBO Direct came out with their 6% savings account special that lasted from May through September of 2007. After that promo, the rate fell to 5.05% APY. Like other savings accounts, the rates have fallen, and it's now at 1.40% APY which is about average for today's online savings accounts. So State Bank of Toledo's reward checking account has done well as a liquid account alternative to online savings accounts.
To learn more about reward checking, please refer to this reward checking overview.
For those with large balances, reward checking is problematic since most accounts cap the balance that qualifies for the top rate. However, even if you don't have a large balance, there is one issue to consider. There's no guarantee that reward checking rates will hold up. I hope they do, but as we've seen this year, rates have fallen.
Back in the second half of 2007 State Bank of Toledo was offering a nationwide reward checking account with a 6% APY with no balance cap. During that time, Pentagon Federal Credit Union came out with 6% long-term CDs. Some asked why lock your money into a CD when you could get the same rate in a liquid account. Two and a half years later, State Bank of Toledo's reward checking rate is down to 2.51% APY for balances up to $70K.
No one knows how rates will change in the future. Using CD ladders is a way to hedge your bets for both future high and low rates. So I'm not giving up on long-term CDs even in this current interest rate environment.
One other interesting note about 2007 is that this was the year that FNBO Direct came out with their 6% savings account special that lasted from May through September of 2007. After that promo, the rate fell to 5.05% APY. Like other savings accounts, the rates have fallen, and it's now at 1.40% APY which is about average for today's online savings accounts. So State Bank of Toledo's reward checking account has done well as a liquid account alternative to online savings accounts.
To learn more about reward checking, please refer to this reward checking overview.
