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Liquid and Bump Certificate of Deposits

Liquid and Bump Certificate of Deposits

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I have been wracking my brain for ideas on what to do now that I am nearing my Rewards Checking limit and won’t be earning much interest on any amount over that limit. I looked into savings accounts, but the interest is so low I just don’t want to go there! I’ve thought about moving money into riskier investments, but I would be increasing the risk profile of my finances as a whole and I don’t want to do that. I asked myself a few questions to narrow down what type of options I should be looking for.

Questions

Will I need this money in the near future?

Yes, actually. I will be needing this money for an engagement ring. I know banks have payment plans, but I don’t like being in debt. I’ve even learned that being in 0% APR debt has its impact on my credit score!

Can I take on more risk at this time?

Now that I have started investing in LendingClub notes in addition to my stock market investments, I have taken on all the risk I can digest. The recent economic worries pressuring the stock markets have not been fun to observe!

Liquid Certificate of Deposit

This instrument provides a low yield in exchange for a higher level of liquidity. The level of liquidity is depending on the bankin institution so one must read up carefully before purchasing. Some institutions allow multiple withdrawals and some only allow one. Some institutions have limits on their withdrawals and some have time constraints.

This would be a good option for me if the interest rates that I’ve seen weren’t so low! The rates are comparable to higher interest savings online savings accounts and I would rather put my money in one of those instead of having to deal with all the fine print.

Bump Certificate of Deposit

This instrument provides a chance to bump up the yield once or multiple times depending on the institution and the length of the CD to maturity. I have seen some decent rates and it makes a lot of sense to invest in a 4 year CD if you are able to bump the rate up a few times. If interest rates rise in those 4 years then you can bump as you go. If they fall, then you have locked in a higher rate. This is only an option if you can lock up that money for a long period of time.

This isn’t a good option for me, espeically since buying a house is on the horizon post-engagement. I just can’t tie up much of my savings right now, which is a bummer. I’m not one to take a penalty for early withdrawal. I don’t plan on looking into the math involved and the literature reads as if the penalty could leech into my principal. I’m just not going to deal with that.

Keep on Looking

It looks like I have to keep looking. I’ll definitely make use of these instuments in the future when I don’t have so many large purchases staring me in the face.

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