A bump up certificate of deposit (CD) is a traditional CD with a twist. With a traditional CD, you are paid a set interest rate for the life of the CD – nothing more, nothing less. CDs are appealing because they’re predictable. They’re FDIC insured and you know that your principal is protected 100%.

With a bump up CD, you get the added bonus of knowing that if interest rates rise, you can get your rate increased. The rules vary from bank to bank but the basic idea is the same, you can “bump up” the rate on the CD if it exceeds the CD’s current rate. The bump up CD won’t usually have the best CD rates but they do tease you with the ability to increase that rate should yields improve.

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20% of Americans “suffered a significant economic loss” last year, according to a report two weeks ago, the highest level in the last 25 years. The Economic Security Index has been tracking data on income loss, medical expenses, and debt since 1985 and it has shown economic insecurity has risen across all groups. What’s economic insecurity? When they’ve lost 25% or more of their available gross income within a year and not enough of an emergency fund or reserves to make up the difference.

Here’s the shocker (at least to me) – “48% of Americans said last year they only had enough resources to carry them for two months before experiencing any economic hardship.”

That’s scary. I’m curious to know how many months you have saved up in your emergency fund as well as how that level has changed in the last two years. We used to have an emergency fund of only around six months until two years ago, when I left my job to pursue blogging full-time. Back then, we decided to up the level to around twelve months of expenses in order to handle the fluctuations in income. It’s maintained that level ever since, in a CD ladders, and I haven’t increased, or decreased it, during the recession. I consider myself lucky, a lot of folks have had to dip into that fund.

How about you?

Not all CD early withdrawal penalties are created equal. I’ve long assumed that the standard penalty schedule of 3-months and 6-months was ubiquitous but with recent news that Ally Bank charges a mere 60 days has thrown by world view into disarray! Fortunately, early withdrawal penalties are disclosed in the Truth in Savings document a bank must publish about its bank products. Understanding them is crucial in our economic times and they often take a back seat to the headline interest rate.

I like to draw this analogy – The interest rate is the flash, it’s like the horsepower of the engine in a car, but knowing the early withdrawal penalty is like knowing the state of your spare tire. Tou don’t want to be surprised at a time of crisis.

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At most banks, if you close a CD before it’s maturity period you pay a penalty of 90 or 180 days. 90 days, or three months, is the penalty for shorter CDs, generally less than 12-months. The 180 day penalty is reserved for CDs with maturity periods of 12-months or more. What makes Ally Bank rare isn’t the clever advertisements or the great customer service (I’ve used their online chat features 3-4 times in the last few days, it’s absolutely wonderful), but higher rates and one of the most generous CD termination penalties on the planet.

The penalty is only 60 days of interest, regardless of the maturity of the CD.

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Last week, George commented in my post detailing how to move your CD ladder explaining that there’s “an implied preference that all CDs in a ladder be at a single institution.”

George is right, everyone implies that your CD ladder is held at a single institution. That is not a requirement of a CD ladder and it’s a case of the money vs. convenience trade-off. You can earn the highest possible rate for your CD or you can have the simplest system… you often cannot have both.

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When it comes to interesting and innovative banking products, Everbank has always led the pack. With some banks you get the same vanilla options – checking, money market, savings, CDs. Reward checking is rare and “exotic” CDs are even rarer (how many banks offer one of the non-standard CDs?).

Recently I received an email from them about a 5-year diversified metals CD. The basic idea is that it’s a principal protected CD with a 5 year term that appreciates if the price of gold, silver and platinum increase. If there is no gain, you receive your principal back.

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After learning about Ally Bank’s most recent 0.25% CD renewal bonus, I decided I wanted to move my CD ladder from ING Direct to Ally Bank. Ally Bank offers some of the best CD rates and with ING Direct lagging behind, I’m almost compelled to move the funds even without the renewal bonus.

As I thought about the move some more, I had a few more options than I realized. It seems simple enough to move a CD ladder from bank to another but there are a lot of ways you can do it.

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The average tax refund for 2009 is around $3036, up over 10% on 2008 returns. It’s a pretty sizable sum when you think about it. It’s a really nice vacation, a good bit of a mortgage payment, and your credit card debt’s worst nightmare. If, however, you’re more of a saver than a spender, you might be curious how large that amount can really be.

Ever wonder how much $3036 would be in 5 years if it were in a certificate of deposit? A Treasury bond? How about invested in stocks? What if you just left it in cash? What about ten years? Twenty? Forty? Let’s find out.

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