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Thursday, October 11, 2012

Increasing Savings With Promotional C.D. Rates


Earlier this week, Bucks wrote about using “laddering” of certificates of deposit as a way to eke out extra interest on your savings. The Web site NerdWallet has done an analysis of banks and credit unions, and has another suggestion for increasing savings rates: promotional or bonus rates on C.D.'s.

While interest rates over all are meager, some institutions - typically credit unions or smaller community banks - may be offering time-limited rates to attract deposits as part of their capital strategy. Usually, such offers apply only to new funds coming in from elsewhere. You won't get the bonus rate if you're rolling over an existing C.D. at the bank. So if you're willing to shop around, and can resign y ourself to moving your money when the promotional rate expires, you can increase the interest rate you earn - and often tie up your money for a shorter period of time, NerdWallet found.

For its analysis, NerdWallet looked at data from Market Rates Insight for the 12 months ending in September and found that bonus rates over all offered up to an additional 0.68 percent over average rates. The average annual percentage yield for a three-year C.D., for instance, was just 0.7 percent, but the average bonus yield for the same term was nearly double that, at 1.38 percent.

The analysis also found that longer-term C.D.'s don't always yield higher returns than short-term certificates, when bonus rates are taken into account. Over the last year, for instance, one-year C.D.'s actually had lower rates than shorter, three- to nine-month bonus C.D.'s, NerdWallet determined.

The catch, of course, is finding these promotional rates, which by their nature are offered for a limited time. NerdWallet has started a weekly index, showing how promotional rates compare with average C.D. rates, and featuring some of the most attractive promotional rates available around the country. Consumers can use those rates as a point of comparison for promotional deals they may find at credit unions or community banks closer to home. (The site also offers a tool to help search by ZIP code for the best  interest rates on C.D.'s and savings accounts, but it generally doesn't include promotional rates, which change frequently.)

The caveat with credit unions is that they often have membership restrictions - you have to work for certain employers, or live in a specific geographic area.

One credit union highlighted by NerdWallet this week, for example, is Service Credit Union, which serves military families as well as residents of specific towns in Massachusetts and New Hampshire. If you meet the membership criteria, you can join and avail yourself of a three-month C.D. with a 0.9 percent annual percentage yield.

Community banks may offer such rates, too, often without some of the membership hurdles, NerdWallet notes. Doral Bank in New York is offering a two-year C.D. at a 1.5 percent yield, NerdWallet found.

What do you think? Is it worth chasing promotional rates to earn more interest?