# How to Maximize the Return of an Installment Savings Account

POSTED BY Ken Tumin

In the last several months I've posted on several installment savings accounts. There are not a lot of banks offering these. They appear most common among banks that cater to the Korean-American communities. Many of these offer rates much higher than the best CD rates. Examples of rates from Wilshire State Bank (which is available nationwide) as of 5/24/09 include:

As in the case of the Wilshire State Bank installment savings account (Rainbow Savings), you receive the best rate if you set up automatic transfers from a Wilshire State Bank checking account into the installment savings account. If you deposit a lump sum into the checking account, you'll lose out on interest while the money sits in the checking account earning little if any interest. To maximize the amount of interest that you earn, you'll want to set up automatic transfers from an online bank (like at Ally/GMAC Bank) into the checking account.

I've set up an example of how to calculate a return assuming that you have a lump sum. The spreadsheet combines the interest of the installment savings account and a regular savings account. I've used Google spreadsheets, and I've embedded the spreadsheet below:

These numbers are based on what Wilshire State Bank lists for a 12-month Rainbow Savings Account as of 5/24/09.

The spreadsheet has the following assumptions:

At the bottom of the spreadsheet, I calculate what I call the effective APY which is based on the total return of both the installment savings account and the regular savings account. In this example, the effective APY is 3.40%. So a combination of the installment savings account and an online savings account can allow you to do much better than a comparable CD.

Refer to my installlment savings account page for other banks offering these. For more details about Wilshire State Bank's Rainbow Account, please refer to my Wilshire State Bank review.

For the latest top CD rates, refer to my weekly rate summary.

- 5.12% APY 36 months
- 4.86% APY 30 months
- 4.86% APY 24 months
- 4.60% APY 18 months
- 4.60% APY 12 months

As in the case of the Wilshire State Bank installment savings account (Rainbow Savings), you receive the best rate if you set up automatic transfers from a Wilshire State Bank checking account into the installment savings account. If you deposit a lump sum into the checking account, you'll lose out on interest while the money sits in the checking account earning little if any interest. To maximize the amount of interest that you earn, you'll want to set up automatic transfers from an online bank (like at Ally/GMAC Bank) into the checking account.

**Update 5/25/09:**Several readers have noted that Wilshire State Bank's eLink Savings Account can be used for the automatic deposits, and this savings account continues to pay a very competitive rate of 2.75% APY as of 5/25/09. I have more details on this Savings Account in my Wilshire State Bank review.I've set up an example of how to calculate a return assuming that you have a lump sum. The spreadsheet combines the interest of the installment savings account and a regular savings account. I've used Google spreadsheets, and I've embedded the spreadsheet below:

These numbers are based on what Wilshire State Bank lists for a 12-month Rainbow Savings Account as of 5/24/09.

The spreadsheet has the following assumptions:

- Installment savings account interest rate = 4.50%
- Regular savings account interest rate = 2.00% (and remains the same for the year)
- Initial balance = $9,759.60
- 12 monthly deposits of $813.30 into the installment savings account
- The initial balance minus the first installment is deposited into the regular savings account
- Interest is compounded monthly
- No interest is lost during the transfers of the money into the installment account

At the bottom of the spreadsheet, I calculate what I call the effective APY which is based on the total return of both the installment savings account and the regular savings account. In this example, the effective APY is 3.40%. So a combination of the installment savings account and an online savings account can allow you to do much better than a comparable CD.

Refer to my installlment savings account page for other banks offering these. For more details about Wilshire State Bank's Rainbow Account, please refer to my Wilshire State Bank review.

For the latest top CD rates, refer to my weekly rate summary.

Anonymous| | Comment #1Anonymous| | Comment #2Anonymous| | Comment #3So maybe it is a good choice to put your all money in the Elink Savings, and then take advantage of the high APY of Installment Savings.

DataIsGold(anonymous)| | Comment #4One for the eLink deposit ($500).

One for the linked checking account: Regular ($500), Now Personal($2500), or Now Power Checking accounts($10000)

The Regular account has the lowest min @ $500 minimum balance requirement.

So I suppose if you don't mind $500 of your money earning no interest, you'll be fine.

Anonymous| | Comment #5I simply set up a direct deposit of my monthly pension into a WSB simple checking account which has no minimum balance. The direct deposit comes in the first business day of the month, and I had WSB set up my automatic transfer from that account into my Rainbow Savings account on the 4th of each month.

I use the money in a rewards checking account at another bank for my ongoing cashflow needs, and replenish it whenever a CD matures.

Anonymous| | Comment #6Great spreadsheet.

Thank you.

When dealing with a Korean-American bank, what you need to do is call all the branches until you find an employee who speaks perfect English. I did this when it comes to Center Bank. I could not understand anything I was being told by my local branch. I found someone at a branch out of state that speaks so well.

Anonymous| | Comment #7I actually went into a branch and opened an account. The representative is Alex.... and he is a Mexican American. There were a couple of girls in the branch that appeared to be Korean but spoke perfect English. I called the FDIC to verrify the bank. I opened a 2.75 money market .... the rate is guaranteed until Janary2010. I am having an auto transfer once a month to fund each of the 4 different Rainbows I extablished. The total cannot be over 100,000. I think that this is an incredible rate given the times! FDIC ... no risk. So now I have been searching for more installment savings. I am going to go to Woori Bank on Tuesday. Does anybody have any more suggestions.

Anonymous| | Comment #8Anonymous| | Comment #9Anonymous| | Comment #10It is not for everyone to do all of those setting and transfers and ACH and then if you can not fulfill any of these things, you may wind up worse off then a regular CD or high interest checking account.

Thanks for the explanation and the table.

Anonymous| | Comment #11Political news(anonymous)| | Comment #12mk(anonymous)| | Comment #13You may be able to increase your yield with multiple installment accounts withe different terms.

For example, the 10,000 you currently have can be divided into multiple installment account payments. 12 month, 18 months, 24 months, 30 months and 36 months. Exhaust the money over the next 12 months. Choose target amount in each plan wisely (can be calculated to optimize). Then when the first plan matures after 12 months use that money to pay installments. When teh 18 month plan matures, use that money to pay the installments on the other 3 plans and so on.

Am I making sense?

Banking Guy(anonymous)| | Comment #14krk77(anonymous)| | Comment #15some folks at fatwallet have done some calculations see:

http://www.fatwallet.com/forums/finance/916671/?start=100

also not sure if you noticed Wilshire has Money Market account with 2.8% APY

Anonymous| | Comment #16As I understand, FDIC insured banks can sell products NOT insured by FDIC.

Are we taking the bank's word for it? Or is there a better way to verify, since this product is different from the "savings" or "money market" or "checking" or "CDs" as defined in FDIC's web page?

Anonymous| | Comment #17What formula did you use to get the effective apy? I set up my ISA spreadsheet just like yours but don't know the calculation. Could you please help me out?

Thanks!