Interest rates creativity ??

[Momcpa]

I had a CD mature. I called local banks to get the current rates they offered. Of course, none were any too great. One bank suggested that a temporary solution would be to start a Christmas Club account. Starting in Oct, you agree to make weekly or monthly deposits into the account for a stated amount. If all deposits are made timely for 49 weeks, the bank will deposit the same amount as a 50th deposit.

In the meantime, I could retain the balance of the matured CD in a savings account. Yes it will be getting trivial interest, but still a little bit. So in effect, getting a little interest on a declining savings balance all year long, then the 50th payment made by the bank.

The bank allows weekly deposits anywhere from $2 to $1,000. Does this sound like a temporary interest "fix", or am I missing something? The other choice is a pitiful CD rate short-term, or locking up my CD proceeds into a 5 year CD (and even that rate isn't too good!) Your thoughts??

This is money I'm NOT needing access to in the short-term, but would prefer to keep somewhat liquid.

 

[sengsational]

About 2% on an average balance of $25K, FDIC insured doesn't seem too bad.

 

[jazz4cash]

Not sure I follow:
If I make 49 weekly deposits of $1000 each, the bank deposits $1000 to the account? Any restrictions? New money? Yeah it could be a great hack. I’m surprised a bank rep actually suggested it! I bet very few folks could actually make full use of it.

 

[njhowie]

This seems like a good workaround, and if the bank provides automatic deposits, you could simply create a weekly recurring deposit from your savings into the Xmas club account - set it and forget it.

The return is actually going to be slightly above 4% - as the average balance is going to be $24,500...you're building up to the $49,000 total throughout the year.

It's a very good deal when you look at it in that respect.

 

[robls]

Which bank are you getting this offer from?
I live in NW Pennsylvania.

 

[Momcpa]

It is a small regional bank. I'm in north central Illinois ....5 or 6 branches in small farming towns. But I would think that any bank that has a Christmas Club or Vacation Club might operate in the same way. It's an incentive to help people save. Not sure what's in it for the bank, but might be a good deal for the customer in this age of low interest rates.

Thanks to the person making the suggestion of 'set it and forget it'. It would make the process smooth and I wouldn't have to remind myself every week or every month.

 

[Momcpa]

O.P. here: So I think there are 5 plus's to this Christmas/Vacation club savings plan:

1. At first glance, the 50th payment = 2% interest.

2. It's FDIC insured.

3. Since it's paid in weekly, the balance of my matured CD can sit in an interest bearing savings account (minimal interest, but a couple pennies) until it gets transferred.

4. Due to the fact that it's not all due at once (like a CD commitment), the interest computes to a little better than originally thought.

5. After 49 weeks of payments, the 50th payment is made. So 50 weeks to get the interest payout vs. 52 weeks for a CD term.

I'm going to meet with the bank rep this week to see what, if anything, I'm overlooking. I'll have her tell me any pitfalls I have overlooked.
Thanks for any responses you've given me.