When it comes to earning interest from cash products, Certificate of Deposits or CDs, are often considered a good choice. However, most CD interest rates are not offering terribly high yields right now.

It’s just the nature of any cash product.

You exchange safety for the potential for higher yields. It is possible, though, to boost your CD interest rates.

There are some high yield CD options that can help you get a little more bang for your buck, let’s take a look at a few of them:

High Yield CDs

These are your basic CDs, but with higher yields.

These CDs are most often found at online banks, so you can head to the Internet to look for them. You can also try a local bank or credit union, since these institutions may be running special deals.

It is also possible to enjoy higher yields on CDs that you get for longer periods of time, or for higher amounts. A 5-year CD with $15,000 will earn a higher yield than a 3-year CD with $4,000. High yield CDs provide a little more in terms of return than you might find otherwise.

Callable CDs

These are interesting CDs that might offer you a higher CD interest rate, but at the cost of the bank being able to call the CD back within a certain period of time.

You are offered a higher rate, but the bank will have the option to take back the CD after a certain term.

Some banks will offer a very high rate on a 5-year CD, and guarantee it for six months, or even a year. But, after that initial call protection period is up, the institution can recall the CD.

You get your principal back, and any interest you have earned to that point, but your high yield goes away. Banks use callable CDs as a way to get you interested, and then take advantage of the market if interest rates drop.

They call in the CD, and then you have to get a new CD — one with a lower interest rate.

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Brokerage CDs

Brokers also sell CDs. They get large issue CDs from financial institutions, and then break them down into smaller pieces that can be sold to investors.

Financial planners and brokers can also help you shop around for higher CD interest rates. Brokerage CDs often come with higher yields than more traditional CDs.

However, you do have to be careful. In some cases, you might have to pay a fee as part of the transaction, or fees charged on assets under management may cut into your returns. You also have to check to make sure your CD is FDIC insured, since not all brokerage CDs are.

Another option related to brokerage CDs is the secondary market. It is possible to buy and sell CDs much as you would fixed income investments. However, you run the risk of losing money in these cases, and your CD is probably not insured.

Bump Up CDs

These interesting CDs offer the option of taking advantage of a higher interest rates later on. You have a fixed term for your CD rate, and if interest rates rise, you have the option of “bumping up” your CD rate to that higher rate when the current term ends.

Basically, you have the option of enjoying a higher CD rates on a new issue if you have a bump up. Since the bump up doesn’t take place until after the original CD’s term ends, you will need to choose quite carefully.

Bottom Line

There are CD products out there that offer higher interest rates. They still may not be the types of returns you can potentially get from stocks (or even bonds), but high yield CD options can help you get a little more for your cash.

Plus, with the right CD products, you can more effectively preserve your capital, and maybe even protect — at least a little bit — against inflation.

This has been a guest post by Nathan Richardson, Managing Editor and Founder of ComplexSearch, Nathan enjoys blogging and helping consumers save money.

Financial difficulties like recessions, job layoffs or reduced salaries have a way of revealing how important it is to build a financial safety net. 

Having funds available for emergencies helps weather the inevitable storms of life and can get you through some difficult circumstances without incurring credit card debt.  

Here are some things to consider when establishing your emergency fund.

How much is enough?

Generally speaking, most financial advisors will recommend you have at least three to six months worth of expenses in a cash reserve. 

Depending on your situation you may want more.  For example, if you have a commission-only job and your income fluctuates or you have a seasonal job where your income is low for a few months out of the year it might be wise for you to establish a larger net.

How do I begin establishing a cash reserve? 

If you find your reserves are a little anemic, consider these steps to start the process:

1. Take inventory of your monthly expenses.  Multiply this number by your desired reserve (i.e. 3 months, 6 months etc)
2. Make a budget so you can begin to “trim the fat”.  Cutting back on unnecessary expenses will free up extra cash that can be saved into your reserve.
3. Get creative on making additional money.  Sell your old “junk” on ebay, or have a garage sale.  Use these proceeds to start building your emergency fund.  My wife and I have made some extra money these last few years by selling our old cell phones, clothes and more on ebay.
4. Save aggressively into a savings account.  There are many great accounts out there.  Bob at ChristianPF has a post on the 10 reasons why he loves ING.  If you like using local banks, I suggest calling around to find out who is offering the highest interest.  Otherwise if you are comfortable with online banking then check out bankrate.com.  They allow you to search the highest yields at banks both locally and nationally.
5. Don’t dip into your reserve unless absolutely necessary.  One of the biggest mistakes people make in setting up cash reserves is a false sense of now “having money to spend”.  Stay focused on the task at hand.  After you’ve built up your cash reserve feel free to reward yourself.  Just remember this money is for a safety net.

I built up my cash reserves – now what?

Once you’ve reached your goal for your cash reserve it’s time to get strategic about earning the most interest. 

I usually recommend a Three Tier Cash Reserve System to help keep the funds liquid and yet earn a higher rate of return. 

A three tier cash reserve basically utilizes a checking account, a money market and a short term CD Ladder. 

Tier 1

Tier 1 consists of your checking account.  It acts as your revolving door, meaning  funds come in and go out on a regular basis.  

Since most checking accounts pay nothing, you want to keep no more than one months worth of expenses here. 

Tier 2

A money market fund is designed to provide a safe place to invest short term liquid assets.  They typically generate a higher interest rate than a savings account. 

If you are using a three month reserve you’ll want to keep about a months worth of expenses here and about two to three months worth if using a six month reserve.

Tier 3

A short term CD Ladder is essentially a 12-month CD bought each quarter or four total.  Divide the remaining amount of your reserve by four and buy a 12-month CD.  In three months do the same thing and so on. 

If you fast forward one year from now, you will have a CD coming due every three months in case of a major emergency and need to access the funds.

Theses ladders can be structured in various ways.  For example, you could buy a 3, 6, 9, & 12-month CD all at once if your bank offers those terms.  You could also buy 12, 24, & 36-month CDs to ladder your funds.  I am a big fan of the 12-month CDs for two reasons:

1. They typically offer higher interest than the shorter term CDs
2. You don’t have to lock up your money for a longer time period.  Since this is a saftey net, you don’t want to be in a position where you are cashing out a longer-term CD early and incurring a penalty or forgoing interest.

Set Targets and Avoid Discouragment

Don’t be discouraged if you are not able to get your cash reserve set up like this yet.  The key is to stay focused on saving your money so that you can get your emergency fund where it needs to be. 

Set a target for yourself of when you’d like to achieve this goal and also set little goals along the way (i.e. saving your first $1,000, getting Tier 2 set up etc.). 

Be sure to reward yourself along the way when your goals are met so that you can stay motivated and positive. 

Saving for Emergencies or Paying Down Debt

Inevitably a question will come up from time to time about whether it is smarter to save into an emergency fund or pay down credit card debt? 

I like Dave Ramsey’s “Baby Steps” idea when faced with a question like this.  What he usually recommends is that you save $1,000 into an emergency fund first and then start paying down your debt. 

You can worry about building up your Three-Tier Cash Reserve once you have your debt wiped out.

Resources To Help

• Bankrate.com - compare interest rates on savings, money markets and CDs from banks across the nation.
• Dave Ramsey’s Baby Steps