It makes little sense to keep money in money market accounts in a big bank or in most local and regional banks, not when there are always a handful of banks really out there competing for your money. It makes even less sense when all these savings accounts are equally insured by the FDIC. A lot of people search for the best rates for CDs. Far fewer pay attention to the significant spreads for regular savings accounts in FDIC institutions.

Most simple savings accounts offer miniscule returns these days in the range of .25% and .35%. But there are equally safe returns, ten to twelve times these amounts at other FDIC banks. If you stop and think about it, the difference in returns is significant. Say you have $100,000 in a savings account at .25 earning $250 a year, and you switched to one offering 3.0% return earning $3,000 a year, you would be realizing a return on the same money 12 times what you now receive or $2,750. And, I have made this kind of a switch and it only takes minutes to do; most of the banks offering high rates are on line and easy to find. Just look at this website; there are three banks offering 3% and more for regular savings.

The math is simple, the money saved is nothing to sneer at, and the time required is minimal. In these times, these kinds of savvy savings are especially important.

The concept of a Certificate of Deposit (CD) is neither unique nor special to banking institutions, however they do pose as a vehicle for a few interesting methods of \"bank investing.\" A CD is a 'time deposit' account at a banking institution (traditional, credit union or internet based) in which the investor guarantees the banks exclusive usage of the funds for a specific amount of time in turn for interest. This interest is usually compounded on a daily basis but credited monthly. Because of this time commitment contract, this rate is usually higher then savings or money market deposit accounts. Interestingly, in times of financial strife, banks may increase the interest rates as an enticement to secure guaranteed assets for their own treasury.

These types of investments are considered in the FDIC insurance of $250,000 per individual per class of ownership. Liquidity becomes the greatest issue with these types of risk-less investments. Because of this 'guarantee' to the bank, early withdrawal will result in penalties. These penalties vary in size - usually being equivalent to three (3) months worth of average accrued interest for CDs with a 12 month or less maturity or six (6) months for those greater than one year. If the withdrawal occurs before enough interest has accrued, the bank may invade the principle.

With these penalties, one may wonder that since the banks frequently change interest rates (in response to the Federal Reserve changing interest rates), could it be investment savvy to accept a penalty in order to reinvest the funds at a higher rate in another CD?

For this to be a consideration, we must make certain assumptions.

• Interest is credited at the conclusion of the day.
• Interest is compounded daily (a norm for most CDs).
• This is a traditional CD, not one in which the rate may be adjusted or funds may be withdrawn upon without penalty.
• Penalties will follow the aforementioned guidelines (average of three months interest for 12 month or less maturity and average six months of interest for greater than 12 month maturity).
• We will assume a 30 day month (360 day year).
• No interest payment will be made in the form of coupons and all interest will be reinvested.

Here are examples of a 1 year and a 5 year CD at average current rates (found at BestCashCow.com). Note that since the bank has a guarantee of your money for a longer duration of time the 5 year rate is much higher than the 1 year.

Initial investment in both: $10,000

CD A - 12 month rate: 1.65 APY (0.0000452 daily rate)

CD B - 60 month rate: 3.15 APY (0.0000862 daily rate)

Total interest for CD A would be ~$164.00 with a monthly average of ~$13.70. (3 month $41.10).

Total interest for CD B would be ~$1679.20 with a monthly average of ~$28.00. (6 month $168.00).

With these figures it must be noted that the penalties are usually an average interest and since this is compounded daily, interest accrued in month one is less than month 2, etc. So, one would lose principle if CD A was redeemed before or at the 3 month mark or CD B before or at the 6 month mark.

Technically it would be possible to absorb the penalty if the APY increased; it would have to increase by over 230 basis points to make up the three month penalty on the 12 month CD at 1.65% in the first month. The APY would have to increase by over 500 basis points on the 5 year CD.

Given that we are in uncharted territory with the Federal interest rate floating between 0% to 0.25%, chances are slim that the interest rates will spike so quickly. If they were to do so, getting back you CD penalty would be the least of your worries. See: Zimbabwe 100 Trillion Dollar Bill. We are not prepared for such inflation/hyper inflation. The best way to leverage the change in CD rates would be to ladder your investments.

First Commons Bank, a new bank located in Newton, MA is offering a 1.5% APY on a 13-month breakable CD. The rate of 1.5% APY is competitive when comparing it to the best cd rates for a 12 month term, although it is near the bottom of the rate table. But what makes the CD attractive is that it offers a one-time withdrawal, penalty free. The best savings and money market rates are currently between 1.5 - 1.8% APY, putting this CD within that range.

The CD requires a minimum deposit of $10,000.

After visiting their website, it quickly became apparant that there is no way to open the CD online. I called and was told that they would be happy to open the CD via phone, fax, or mail. The offer is available nationally. To open via phone call 617-243-4400.

First Commons Bank opened its doors in September 2009. The bank was capitalized by over 300 investors who contributed $18 million. In a short period of time it has attracted 55 MM in assets. It currently has one branch in Newton, MA, an affluent suburb outside of Boston.

The bank is nationally chartered and FDIC insured. Because the bank just began operation, there is no Bauer rating available yet.