Claire's Random Thoughts

Federal funds rate: 5.25 last month, 4.75 this month

Discount Rate: 5.75 last month, 5.25 this month

Prime Rate: 8.25 last month, 7.75 this month

Basically, interest rates are going down. This is bad news for high-yield savers like myself, because I can kiss my liquid 5 percent APY online banking accounts goodbye now.

ING Direct has already dropped their online savings rate from 4.5%-4.3%, and other high-yield accounts are soon to follow, since banks tend to look at and react to each others’ rates. Savers are lucky if the rates stay above 4 percent.

Since I’ve become obsessed with getting the best rates a few months ago, I never understood why anyone would choose a CD over a nice liquid online savings account. Now, I see why and have officially locked a nice portion of my money into a 5.1% APY Certificate of Deposits.

If I were a financial advisor, then I would recommend locking into a CD with at least 5% yieldfor any term 6-12 months at this point in time. In the near future, these rates will be much higher than variable rate accounts due to the federal rates cuts.

Recommended accounts (I am in no way affiliated with these banks):
I recommend opening two accounts with different terms, because I can’t be sure exactly when the rates will bounce back up.
Washington Mutual’s 12 Month 5.10% APY CD.
This CD is binding for 12 months, but it will guarantee an interest rate of over 5% after the variable rates drop. I’ve invested a good amount into this CD, because I feel like 12 months is a reasonable term. Anything longer than that, and you can’t be sure how rates will change.

Bank of America’s 5.10% 4 month CD
I had a personal dislike for Bank of America, because my parents used to put my money there for 0.20% interest when I was younger. Thinking about how much potential interest I lost there, I hesitated to invest more in their bank, but this CD was too good of a deal to resist. The term is only four months long, which could be good or bad. If the interest rates bounce back up soon, then this CD would be a much better deal than the 12-month WaMu one. Otherwise, not. Since I’m not sure, I split my money up.

This is a really old post, and you definitely can’t open either of these accounts anymore. If you’re here, it’s probably because you found it in my “Popular Posts” section. I’m not sure why it’s showing up, because it’s definitely not my most popular post, so I’ll have to figure out what’s wrong with that plugin. Meanwhile, I suggest you disregard this post and just move on to another one, because this post is really out of date.

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I thought of an idea to take advantage of a credit card contract, but it only works for people who have self control. If you are one of those people who can never hold onto cash without spending it, then don’t do this, because you will probably only get yourself into debt. I’m sure some other people think of these things, but very few actually carry out the plan. I feel good when I think I have outsmarted the banks, though.

Things you will need to sign up for:

1. Bank of America World Points Card

2. A citi e-savings account and EZ checking account (the site will lead you to open both of these)
Alternatively, an HSBC savings account will work too and get you even more interest, but I find Citi’s online banking a lot easier to use.

So, what’s so special about the Bank of America card? Aside from a $50 statement credit after you start using it, 2000 bonus rewards points valued at $20, and no interest for 12 months, when you get the card, you will also get three convenience checks that the bank will waive the transcation fee of if you use. I couldn’t believe this at first, because I had never seen a free cash advance. Since I’ve been known to misinterpret fine print, I deposit one with a couple hundred in one of my checking accounts as a test. Sure enough, I was only charge the face value of the check. Whatever you do, don’t get a cash advance at an ATM or bank and say this doesn’t work, because only convenience checks are not subject to the transaction fee.

Side note: make sure your conveniene checks say something like There is no transaction fee for cash advance checks. I think the contract should be the same for most people, but make sure the convenience check can be used without a transaction fee before you use one for a large deposit.

Deposit whatever amount you want, 30% to 70% of the credit line, with a convenience check into the citibank e-savings account. There, watch the money grow at 4.75% APY. Do NOT use the money in this account for anything other than paying off the credit card. If you value your credit more, then it would probably be a wiser decision to use up just 30% of the credit line. However, there are people who could preserve a good credit score while using up to 70% of their credit lines. If maximum profit is your goal, then you may even want to try near 100% of the credit line. Get a little bit less than that, because you may want to use the card for a purchase in order to get the $50 statement credit offer. No matter what amount you put on the convenience check, try to avoid using this card for multiple purchases, unless you are planning to pay for the purchases in full each month. There’s a nice rewards program with the card, but you can always use that after the 0% APR promotional period.

There are two methods to paying this cash advance off:
Method 1 (more profitable): Pay the minimum payment each month until the last month of the 0% interest promotion. At that last statement, transfer enough money from your e-savings account to your EZ checking account to pay off 100% of the balance, and use a check from the EZ checking account to pay off the card.

Method 2 (better for credit): Divide the amount you charged by 12 and pay that amount each month. If necessary, then transfer whatever amount you need each month from the e-savings account to the EZ checking to pay each month’s statement. You will get less interest, but this method is slighly better for credit score purposes.

After you pay off the card in 12 statements, the e-savings 4.75% interest, $50 statement credit, and 2000 bonus reward points are yours to keep. You also did a good job paying off a medium-sized debt that will show up on your credit report.