An Add-on CD is a certificate of deposit with a fixed or variable rate where you can continue to make deposits over the term of the CD.

A little later we’ll get into the purpose for investing in an Add-on CD, but for now let’s look at some of the differences in order to understand what you’re investing in.

While there are no basic differences between a fixed or variable CD or an Add-on fixed or variable CD in and of themselves, the obvious difference is the adding of money to the certificate during its term, otherwise it functions as a normal CD with all its usual functions and protections.

The difference you’re looking for is like any other CD, where there are minimum opening deposits, and also in some cases, minimum additional deposits. There are also some Add-on CDs which require a minimum amount on a monthly basis. For example, you may be required to add $50 a month for the duration of the certificate. This isn’t bad if it falls within the parameters of your investment strategy.

As with any CD, you must be aware of the automatic renewal window, which allows only a certain amount of days to close the CD or allow it to renew.

So why bother with a CD like this at all? In our existing economic conditions, cash is the ultimate contrary asset to hold in the world right now, and so is a good time to hold some, as many people in America are starting to do.

To that end, all of us should have a stash of cash socked away for emergencies, possibly even a little higher than the usually suggested three to six months worth in normal economic times in case of unexpected circumstances. If you’re able to, I would even put away as much as nine months to a years’ worth of cash to protect yourself against the poor economy.

With that in mind, why an Add-on CD works so great is it gives you the option of putting away and building up cash in a way that forces some discipline on you. If you attempt to take it out, you’re hit with a stiff penalty, which is good in my estimation, as it keeps you from spending it on whims and not on truly unexpected things as the consequence of hard times.

One other nice thing about an Add-on CD is it allows you have a shorter waiting period for your money as the CD matures. In other words, if you pay some into it every month, that means it’ll be less time you have to wait for your money as it continues to bear interest for you and build up your personal cash reserves.

If you have a safer investment that could provide better and more flexible returns, you could then put your cash in that to continue to build it up without having to wait long periods of time with all your money. So money you put in over the last several months of an Add-on CD is only tied up for that period of time until the CD matures, and then you can decide from there what your next step will be in reference to building up your cash reserves.

The point is an Add-on CD is a great place to build up your cash on a monthly basis without tapping into it like you easily could with a money market fund or money market account. That’s a good discipline to have when it’s imperative to have some cash on hand during these difficult economic times.

We’ve been talking a lot about CDs lately on Savingtoolbox.com, and I’m going to continue on with that theme for awhile, as in low-interest rates time like we’re in, banks usually offer up a bunch of diverse CDs to customers to provide a variety of options to suit individual needs, and also to entice them to park their money using some dangling carrots of higher interest rates and flexibility for those looking for better but safe interest returns.

Some of these CD products are called different names by different banks, and sometimes in different parts of the country, so it can become very confusing to those shopping for banking products. For example, we recently looked at what is called bump-up CDs, which can be used to take advantage of higher interest rates, but the owner has the responsibility to check in with their bank sometime in the duration of owning the CD to tell them they want to bump it up to a higher interest rate.

Now with something called a Step-Rate CD or Step Up CD, it’s a little different in that there are guaranteed interst rate increases which the buyer doesn’t have to be concerned about watching, but automatically kick in a specific intervals of the term of ownership.

For example, a 4-year CD may start off at a 4 percent interest rate for a year, and then jump to 4.5 percent after 24 months, and on up as it matures.

What you want to do with something like that is add up the interest rate offered during the term of the CD and divide them by four, or however many years you have it to get an average interest rate for the overall period you own it. That guides you as to whether it’s a good deal or not.

Many Step-rate CDs will be for less time, but still offer interest rate increases at intervals of seven months and so on, so you can still divide by the number of increases over the length of the CD and get the average interest rate for the period of time you own it.

So the difference between a bump-up CD and a Step-rate or step up CD is you’re guaranteed an interest rate at specific intervals and specific rates while you own it. Bump-up CDs on the other hand, only guarantee that you can bump up the rate sometime during the time you own it. Sometimes it’s more than one time, but with many bump-up CDs you only get one crack at it. You’re still guaranteed a minimum interest rate, but it’s less certain as to how much it’ll increase, as it depends on the market.

Step-rate CDs are for those who want certainty and guaranteed returns they don’t have to think about. Bump-up CDs are for more hands-on people who want the chance to make more on their interest rates by watching the market carefully and timing the interest rate bump for the best possible increase.

If these types of CDs are called something different when you’re checking them out, just remember the differences shown in the above paragraph and you’ll understand what they do no matter what name is applied to them.

Hudson City Savings Bank (OTC:HCFB) which serves the Connecticut, New Jersey and New York markets, is now offering some of the best CD rates in America, paying out 2.50% APY on 24-month certificates of deposit and a 3.00% APY on 36-month CDs.

As far as I’ve been able to find, there are no other banks that offer higher CD rates than this, although Flagstar Bank is offering the same interest rates on their 36-month CDs.

Here are the current terms of the CD as of this writing:

• 3.00% APY 3-Year CD ($5,000 minimum balance)
• 2.50% APY 2-Year CD ($5,000 minimum balance) 
• 1.75% APY Internet Money Market Savings ($2,500 minimum balance)

If you want to invest in the 3-Year CD, it’ll cost you $5,000, but if you live in the three states Hudson City Savings Bank serves, you can get in as low as $500. 

There are no other local limitations, and you can apply for the CD at the national level, i.e. it doesn’t matter where you live in the U.S., you can get in on the great interest rates.

Hudson City Savings Bank has been named as “The Most Efficient Bank” more than once, which allows them to offer better rates than the majority of their competitors, as you can see with the CD rates I mentioned here. They have 125 branches in the 3-state area they physically operate in.

CDs acquired from Hudson are insured by the FDIC for up to $250,000 until the end of 2009, where, along with all banking investments, will revert back to the former $100,000 per customer, unless that is changed. For now that is the known circumstances concerning insuring all banking accounts under the FDIC umbrella.

Do go to the bank’s web site to confirm the CD rates, as then can change quickly. But as of October 2, the CD rates stand as I’ve written here.

Other than a different name, a liquid CD is really not much different than a regular Cd, with the obvious exception of having access to you capital at any time.

You may also ask, if that’s the case, wouldn’t it be the same as a money market account and savings account? The answer would be: absolutely yes – but with an exception we’ll get into in a moment.

So you don’t get confused, a liquid CD is still a CD. You buy it in the same way you would a regular CD, only now you have access to your cash when you want it.

Similar to a regular CD, a liquid CD will also be insured by the FDIC, but your allowed withdrawals will be penalty-free, in contrast to a regular CD.

One thing to keep in mind when looking at investing in a liquid CD is the terms offered by the various institutions. In some cases a bank will cap the amount you can withdraw, so the liquidity offered is limited. In these cases there should be a trade-off of a higher interest rate in comparison to other liquid CDs offered by other banks, otherwise there would be no incentive to buy one.

Other limitiations some banks include are how many withdrawals you can make within a specified time period, or some banks leave the entire withdrawal situation alone and allow you to withdraw however much you want when you want. Again, if there are restrictions, look for higher interest rates or don’t bother with them, as there’s no reason in the world to get a limited product that is offered by someone else with the same or higher interest rates with no limitations. If there’s no added incentive to buy a CD with limits on withdrawals, simply pass on it and buy one that allows unlimited withdrawals with similar interest rates.

Now the interesting thing about a liquid CD, is it might be marketed by a bank as a great alternative to a regular CD, and it is as far as liquidity goes. But the problem is there are already savings products available like a money market account and a regular savings account where you have liquidity already.

So why would you even want to consider a liquid CD if there’s no real obvious advantage to buying one? The answer is it has to do with interest rates.

If we’re in a time of interest rates falling, then acquiring a liquid CD instead of using a savings account or money market account makes sense, as it will protect you from lowered returns during that period, while having immediate access to your money.

But if interest rates are bottomed out, like they are as of this writing, a liquid CD really offers no value at all, and performs exactly the same a a money market or savings account. It won’t hurt you, but it won’t help you either. The only thing it could do is lock you in to lower interest rates, keeping you from enjoying better returns.

Consequently, in a low interest rate environment like we are in today, there is no value in a liquid CD, and if you think interest rates will rise sometime soon, you could miss out if you’re locked into a liquid CD rate.

On the other hand, if interest rates start to move up and look like they’ll start declining again, a liquid CD makes sense, and it is the only real time it adds any value to your savings strategy.

While a bump-up CD is as safe as any CD, there is an included benefit, which when used right, can be a great way to take advantage of interest rates when the interest rate environment is one that is rising.

The duration of a bump-up CD can change from financial institution to financial institution, along with the interest rates offered, so you obviously need to do your homework concerning that.

What a bump-up CD is is just what it sounds like. If you buy a CD that has the bump-up option, what that does is allow you to participate in increased interest rates by telling your financial institution you want the new and higher rate as they’re offered. It’s as simple as that. If the interest rates rise, you contact who you bought the CD from and tell them you want the higher rate. It’s obvious, but you must buy a bump-up CD to get this. You can’t just buy a CD and tell the bank to bump it up, it doesn’t work that way.

The reason why, is the original bump-up CD will carry a slightly lower market rate at the time you buy it. A bank or financial institution will gamble that the interest rates won’t go higher during the time you own the CD, while you’re gambling it will, by buying the slightly lower interest rate. So in essence, both the bank and you are offering one another a carrot and a stick to make the transaction.

If interest rates don’t go up during the time you own the CD, the bank wins because they got use of your money at a better rate than they did from others, thus making more profit. If the interest rates do go up, you win, assuming they go higher than the market rate offered for regular CDs, so the bank makes less profits on your money, while you make a better return.

As a bump-up CD will be insured like any other CD, the risk isn’t in losing your money, the risk is in possibly making a smaller return.

So the obvious time to buy a bump-up CD is when it’s close to certain interest rates will start to rise, so you can essentially lock in a higher interest rate by temporarily accepting a smaller one until the higher rates kick in.

The other thing to take into consideration is the length of time it will take an interest rate to rise. You want to buy a bump-up CD when you believe there will be significant hikes in the interest rates … and soon, as the longer it takes to rise, the less chance you’ll have of making up the difference in interest rates when you first bought them, as it would have to rise fast and high the closer it gets to the end of the ownership period.
 
The strategy would be to buy them as close to the expected interest rate hike as you can, as that would give a CD the chance to move up a couple of times during the time you own it, giving you a much higher interest rate than you would have if you had bought a conventional CD.

Be sure to check with the institution as to how many bump-ups you’re allowed, as at times they’ll limit it to two or less, so you want to be sure if the interest rates rise, that you get the bump.

Also remember that just because the interest rate rises, doesn’t mean the bump automatically kicks in or you have to trigger it. The couple of bumps allowed by most banks can be taken an any time while you own the CD, and so you must keep a careful eye on when the best time will be.

One other thing to watch for is some banks require you to extend the length of the CD when you bump it up.

Keep all these factors in mind when looking into a bump-up CD. They can be great personal finance tools to use to get a better return on your money. Just understand what the bank or financial institution you’re buying it from requires, and watch the Federal Reserve and any expected announcements as to interest rate increases.

Most the times the consensus from analysts is pretty much on the money as to when interest rates will rise, the only question usually how many basis points.

With the names sounding so similar, a money market account and a money market fund can be confusing at times to many people, and considered a different name for the same investment vehicle, when in reality they’re very different in spite of similar sounding names.

For a money market account, this is a savings account banks or credit unions will offer to their customers, where the difference is it’ll have a higher interest rate based on higher minimum balance requirements than a passbook savings account would, which usually has no minimum balance requirements.

A money market account’s funds will also be backed up by the Federal Deposit Insurance Corporation (FDIC), for up to $250,000 at this time, which could be brought back down to the normal $100,000, once the temporary higher protection may be lifted.

Another element of the money market account is you can only make up to six withdrawals a month, and in some cases also have check writing privileges of three a month for the account. Fees can be applied if you go beyond the limitations of the terms of agreement, so they should be read and understood so you aren’t charged unnecessary fees.

If you belong to a credit union, your capital in a money market account would be protected by the National Credit Union Administration, which is also a federal agency.

A money market fund on the other hand is a mutual fund which invests in short-term securities like U.S.Treasuries, commercial paper and CDs, among a number of others.

Although a money market fund has no guarantees for you capital, they rarely fall below their net asset value, although a recent case happened when it did, when Lehman Brothers collapsed last year and people lost money in their money market fund accounts. This is extremely rare, but it can happen.

Of course the slightly higher risk comes from slightly better returns.

Either one of these accounts should be used to place your backup capital for emergencies, where you can get almost immediate access to your money.

The trade-off between the two is a little less interest with absolute guarantee for your money in a money market bank account, while the money market fund will normally give you a better return with a little more risk, and no guarantee of your money.

With the collapse of the banking system and unsurety of a lot of investments, many people are rightfully concerned about where to put their money; not only to increase it, but to even hold on to it.

Although we usually talk about what is considered very safe investments at Savings Toolbox, there is one investment that has been largely ignored for a long time because it’s somewhat boring and unexciting to talk about or invest in, and that is the incredible safety and value in targeting companies that pay out dividends.

With safety being one of the major concern at Savings Toolbox, we’ll focus on how you can invest in a company that almost ensures a good return for years into the future, no matter what the current economic conditions are, and whether the stock price goes up or down.

The secret in this is to find companies that have a record over a period of time of raising their dividends year after year. That means that they are in a great competitive position and as Warren Buffett would say, have a moat around them protecting their business from competitive pressures.

For example, take Wal-Mart (NYSE: WMT). Every year since they became a public company, they’ve increased their dividend year after year. So whether their stock price went up or down or not didn’t matter, you still build wealth through the dividends always kicking in. Any company that has a proven record of increasing their dividends every year means they have a competitive advantage over the market of markets they serve, and even if you don’t understand their overall business, that in itself will be one of the key metrics to use in determining how strong of a company they are.

The second part of the power of investing in a company for their dividends is to be sure to reinvest those dividends back into the company. That will build up uninterruptedly for years into the future, and ensure a safe and sound return until the day you want to tap it for retirement.

Why can this happen? When a company starts to mature while dominating their market, the need for capital to market and expand the business at a strong pace recedes, and so capital expenditures decrease, making the company strong in cash, which is the key to ongoing dividends.

So our job is to find companies like a Wal-Mart and others that have been around even longer, and find out the history of their dividend payments. When you do, you understand that they have prospered during good times and bad, and so can be counted on to build your wealth with a long term horizon in mind, and do it safely. Don’t underestimate of be afraid of investing in these companies, just to invest in companies that don’t have that type of proven dividend-increasing track record.

While there is no investment without risk, a money market fund comes about as close as you can to meeting that criteria.

What is a money market fund?

A money market fund is nothing more or less than a mutual fund, which most of you reading this will understand. The difference in what the mutual fund invests in.

In the case of a money market fund, the law requires that it invests in securities that are low risk; things like certificates of deposit, short-term bonds, commercial paper and government securities.

As the money market fund does that, the goal is to keep the net asset value of the fund at $1 a share. Very seldom historically has it fell below that level at any money market fund.

Because money market funds invest in low-risk securities, the interest or dividends paid out are low, so are best used in certain situations where that type of pay out is conducive to existing living circumstances and conditions.

For example, in our current economic crisis it could be a good way to retain capital. Sometime we get into these type of difficult economic times, and we need to be defensive rather than offensive in our investment decisions. This is where money market funds can meet that particular need.

Temporary Guarantee Program
 
Under the Temporary Guarantee Program for Money Market Funds administered by the the U.S. Department of the Treasury, the Treasury Department guarantees the share price of participating money market mutual funds.

Here’s the guidelines stated by the SEC for those money market funds that would qualify:

As part of the program, all money market funds that are regulated under Rule 2a-7 of the Investment Company Act of 1940 and are publicly offered and registered with the Securities and Exchange Commission will be eligible to participate. 

What are strategies to use money market fund?

So when would be good times to use a money market fund as part of your investment strategy?

If you think of investing as a marathon instead of a sprint, you would see that there are stages you start off on, and adjust to accordingly as age and circumstances change.

One example would be when you’re younger, middle aged and approaching retirement. When you get closer to retirement, conserving capital is more important than growing capital, so things like a money market fund are used by many in those conditions.

But age isn’t always a factor either for using a money market fund.

Let’s use a case of building up a ’529 College Savings Plan.’ Similar to someone starting off in their investment strategy, you use more aggressive investment vehicles to build up your 529 College Savings Plan at the beginning, but as the time for college approaches, again, it’s conserving capital that is more important than building capital, so again, this is a place you could use a money market fund to fulfil that need.

The secret is to apply it to temporary or overall life circumstances. The beginning of an investment cycle should be aggressive, and as it gradually moves toward its end, think of using a money market fund manage your capital the final stages.

Raise your hand if you need help saving money. I’m guessing there are a lot of readers who have their hand in the air. Saving money for retirement or your child’s college education requires a different strategy than saving money for your emergency fund or other short term goals. Fortunately, with the launch of an innovative website in April 2008, saving money for specific short term goals has become easier for consumers who traditionally find it difficult to put money aside for specific goals.

What is SmartyPig?

Co-founded by Mike Ferrari and Jon Gaskell, SmartyPig was created to help consumers reach short term savings goals. The concept is brilliant in its simplicity. Basically you register for an account on SmartyPig, establish a savings goal and time frame in which you would like to achieve your goal and SmartyPig does the rest of the work. For example, if you want to save money for your next family vacation you simply enter how much money you want to save and by what date and SmartyPig will determine how much money you have to put away to reach your goal. You then set up an automated withdrawal from your bank account to fund your new savings account. Once you register your account you can simply set it and forget it.

Where does your money go?

If you are like me, you are probably wondering where exactly your money is being held. Once you authorize automated withdrawals your money is held at West Bank, an FDIC insured bank. SmartyPig works to provide the most competitive interest rates in the country allowing your money to grow while you save for your goal.

What about security?

Now that you know where you money is being held, the next logical question would be concerning security. SmartyPig offers a secure account set-up, account log-in, timed log-off and a powerful state of the art firewall that blocks unauthorized entry. All account information is encrypted and the website is secured with VeriSign Extended Validation SSL. Find more security information on SmartyPig’s security page.

Unique Features.

SmartyPig offers unique features that make saving and accessing your money easier than ever before. Not only are you able to save for your short term goals, but friends and family can offer their support as well. You can make your goal public on social networks like MySpace or Facebook as well as your blog or website and other people can support or even contribute toward your goal if they wish.

Once you reach your savings goal you will have the option of accessing your money via a SmartyPig debit card (accepted wherever MasterCard is accepted). Another option which can increase your savings even more (up to 6.00%) would be receiving your money via a gift card from participating retailers (list of retailers provided on website). Of course you can also simply transfer your money back into your bank account allowing you the freedom to use your money however you please.

SmartyPig certainly appears to offer a unique way to set and achieve short term savings goals that otherwise might get placed on the back burner in a shaky economy. More and more consumers are adopting a new mindset when it comes to spending and saving money which will certainly only add to the popularity of online money management or savings tools.

Do you ever wonder what happens to all of your money? Even if you have a household budget and keep a reasonable eye on where your dollars are going many people reach the end of the month wondering what happened to all the “extra” they thought they should have. It is not enough to have a budget and general idea where your money is going each day. In order to truly reach financial security you must have healthy saving and spending habits as part of your daily routine. Here are few places those missing dollars could go to save you even more money in the future.

• Pay more than the minimum- This advice is commonly found when looking for ways to pay down your high interest debt. While this is definitely true you should also consider paying more than the required amount on your mortgage or home equity loans. Unless you will face a prepayment penalty paying more on your principal can save you thousands of dollars on the life of your loan.
• Continue making payments after your debt is paid off- Not to the lender of course, you should continue making payments to yourself instead. If you do not have a “place” for that extra money to go each month it will likely get absorbed into your day to day living expenses. Instead you can redirect those payments to your savings account without missing the money since you are not used to having it in the first place.
• Review your bills- Automated payments offer the convenience of not having to pay attention to when or to whom your bills are paid, however many people become lax in actually reviewing their bills. It is important to read your bill each month not only to check for inaccuracies but to also “see” how much you are spending. You may be able to implement small changes in your daily habits that can reduce your electric, heating or water bills.
• Automate your savings- Instead of relying on your own memory and will power to get your savings into your account each pay day sign up for direct deposit and have your savings automatically deposited into your account. This will reduce the chances of you “finding” other things to spend the money on by eliminating the need for you to handle the transaction.
• Take advantage of employer offered retirement plans- Similar to automated savings when you have your retirement contribution directly withdrawn from your pay check you not only reap the tax benefits you might also benefit from “free” money if your employer offers to match your contribution.