« No Aloha | Main | Economy Not So Bright »
4.0% Interest Checking Account
By JD Bluefield | April 2, 2008
While researching a place to earn a higher interest than my current 2.75 and 3.0% savings accounts I found an personal interest-bearing checking account through Central Pacific Bank, a local Hawaii bank. With it comes a 4.0% interest rate, unheard of for a checking account and brick-and-mortar bank. Its other benefits listed on CPB’s website are below:
An interest earning checking account where you can earn a higher interest when monthly requirements are met. Benefits:
- No minimum balance
- No monthly service fee
- Higher rate compounded daily
- Unlimited check writing
- Check Safekeeping service (e-statements when available)
- Free Visa® CheckCard
- Free ATM access in Hawaii and Nationwide*
- Free Online Banking
Earn a higher interest rate when you meet these monthly requirements:
- 15 purchases with your Central Pacific Bank Visa® CheckCard
- Direct deposit to your account
- Automatic payment from your account
- Enrollment and login to Online Banking
- Check Safekeeping service
The fine print i’ll summarize, it reads that you will only receive the 4.0% APY interest on the first $25,000, you must login once a month, ATM surcharges will be refunded up to $3 and that if any of the requirements are not met you will only receive 0.05% APY for the month.
If you don’t have a high interest bearing savings and/or pay many items at the store through debit/paper checks this is a great way to get started in online/digital banking. Once you set up the direct deposit and auto-payment, the only thing to remember is to check your online account monthly and make 15 purchases (ACH transfers and ATM withdrawals don’t count). Hypothetically, you’d need to make a purchase every other day, which is the only part I really dislike. The thought of HAVING to spend money in order to gain interest bothers me. I also don’t use any debit cards, just cash-back credit cards. Below is a table which shows how much you can potentially gain.
| Description | Calculation | Total |
|---|---|---|
| Monthly interest on $5k @ 4.0% APY | $200 yearly int./12mo | $16.67 |
| Monthly interest on $10k @ 4.0% APY | $400 yearly int./12mo | $33.33 |
| Monthly interest on $15k @ 4.0% APY | $600 yearly int./12mo | $50.00 |
| Monthly interest on $20k @ 4.0% APY | $800 yearly int./12mo | $66.67 |
| Monthly interest on $25k @ 4.0% APY | $1000 yearly int./12mo | $83.33 |
| Monthly interest on $30k @ 4.0% APY | $1025yearly int/12mo | $85.42 |
| Monthly interest on $35k @ 4.0% APY | $1050yearly int/12mo | $87.50 |
If you notice, after the first $25,000 in principle the interest gains drop dramatically. At first glance you might think that you should keep as much additional funds to meet the minimum for your auto-bill pay and 15 transactions and never let the balance drop below $25,000 (this is also what the bank clerk told me to do). But that is the trick. As you can see, the returns on any additional money are minimal.
| Description | Calculation | Total |
|---|---|---|
| Interest on $5000 over $25k @ 0.05%APY | $5000 x 0.005 | $25 |
| Interest on $5000 in ING @ 3%APY | $5000 x 0.03 | $150 |
| Missed Interest | $150 - $25 | $125 |
Here’s how to Engineer for Maximum Interest:
- Never exceed the $25,000 cap on 4% interest.
- Auto bill pay your lowest priced monthly bill.
- Transfer anything expected to go over $25,000 directly to your online high interest savings account (ING Direct, Emigrant)
- Utilize the debit card for everyday purchases, but only on the lowest priced item in your cart, and charge the rest to credit.
- You could also break certain purchases up individually and knock off as many of the 15 transactions as possible. But only do this if no one else is in line,… don’t be a bastard.
That was the best case scenario, but for me the 15 purchases are the killer. Just for some food for thought, here is the ideal gain compared to keeping the $25k where it is. I also added, what a couple unnecessary value meals (to make the 15 purchase requirement) will do to the savings.
| Description | Calculation | Total |
|---|---|---|
| Monthly interest on $25k @ 4.0%APY | $1000 yearly int./12mo | $83.33 |
| Monthly interest on $25k @ 3.0%APY | $750 yearly int./12mo | $62.50 |
| Maximum benefit of switching | $83.33 - $62.50 | $20.83 |
| Ideal Total yearly benefit | $20.83 x 12 | $249.96/yr |
| If stuck buying 2 value meals you don't need to meet the 15 purhcases | $5.50 x 2/mo x 12mo/yr | $132/yr |
| Reduced yearly benefit | $249.96/yr - $132/yr | $117.96 |
Is it worth it? Since most online savings and CD’s dropped to around 2.5 - 3% APY, a 4.0% APY checking account is nothing to sneeze at. On the other hand, unlike a CD the interest rate is not locked in. In my opinion, if you really want to earn interest on money while it waits to pay a bill and have the discipline to Engineer for Maximum Interest, then it is a very good deal. As a warning, IF WHEN this rate drops, there may be no sense in keeping the account open. Also banks usually charge high fees for the features an account with these features, so if those policies change down the road, cut bait. Then comes the problem of unwinding all connections to the account arises, and that is the answer to the question, “WHAT’STHE CATCH?”
Will I do it? I think I will! I’ll let you know how it goes in the coming months.
Oh, by the way, if you do sign-up or inquire about the 4.0% checking, be sure to mention that you found out about this promotion through BluefieldMoney.com. Just for signing up, you’ll get a free gift… I chose the bag of rice. :)
Topics: Engineered Living, Personal Finance, Savings |
Comments
You must be logged in to post a comment.