Extra Interest Without Extra Risk

Watch those savings bond redemptions. If you are out of work, you may be scrounging for old savings bonds that you received as gifts or put away during fatter times. Unlike other bonds, savings bonds post interest very infrequently. Savers can lose up to six month's interest by cashing these in at the wrong time. Examine the date of purchase. You will receive maximum interest by cashing the bonds during that month or six months later. Always confirm interest posting dates with a teller before redemption. It may pay to get your cash elsewhere if an interest posting is only days away.

Know the difference between ordinary interest rates and "discounted interest rates." Normally, when you buy a bond or deposit cash in a bank, you receive interest on the entire amount on deposit for that time period and not a penny more. But some interest rates are deceptively calculated. When choosing between a 3-month or 6-month treasury and what looks like the same interest rate on a CD in your local bank, always choose the treasury.

This is because the interest is calculated differently on short-term treasury notes and bank CD's. The interest rate on Treasuries is set by large borrowers during auctions. These are called, "competitive bids." Small buyers enter purchase orders non-competitively and accept an interest rate set in the open market by heavy hitters. What happens is that the big guys don't say, "I'll accept 5% interest on $10,000.00 for 6 months." Instead they say, I'll pay "$9,975.00 for the 6-month note and get $10,000 at maturity."

When you place non-competitive bid alongside these guys for these short term bills, you ride along on their coattails. That means you get the $25.00 upfront as well and your full investment back at maturity. Functionally, you have received the same amount of money on $9,975.00 as someone who invested $10,000.00 at 5%. The difference is that you have less invested and your up-front payment can be invested a second time.

When money is consistently invested his way over a lifetime, the difference in earnings starts to show. And you are also rewarded by having an investment that is considerably safer than a comparable bank deposit because there is no FDIC limit as there is for bank insurance coverage. Contact the Treasury Department www.treasurydirect.gov/ for more details on upcoming security auctions. These are also the people to get in touch to replace missing savings bonds.

If you prefer the convenience of a bank there are ways to kick your interest up here too. Internet banks have been in existence for several years and most are subsidiaries of established banks such as Emigrant or HSBC. The original online bank, ingdirect.com is affiliated with a large Dutch institution. All of these pay more interest because their overhead is nil. There are scams out there though, so you will want to contact a website like Bankrate www.bankrate.com/ to separate the wheat from the chaff.

Bankrate is also the place to go to find banks all over the country who are in competition for your funds and willing to offer a few extra dollars in interest. If you go this route, make sure that your computer security is up to snuff. Run a computer with firewalls, anti-virus and other basic security protocols. Additionally, beware of emails sent by fraudsters. Don't click on links. Instead, open a new browser window and type your bank's address in yourself if you have any inquires. Same thing regarding telephone inquiries from a bank. Get their phone number from directory assistance and ask to be connected to the person who supposedly called. These banks protect the money at their end; you have to protect it on yours. For more information about computer security, please see my articles or others posted at associatedcontent.com.

If dealing with mystery institutions over the internet is just not your style, there is one last tactic that you can use for grabbing a few extra pennies from your bank. That is, the promotional rate CD. A major way that banks discourage sudden, uncontrolled demand for funds is by locking depositors into CDs that exact penalties for premature withdrawals. Because banks have to match funds on deposit with the times when they expect to experience demand, their usual method of offering 3-month, 6-month and 12 month CDs may not entirely work

Instead, you may be offered a 4-month or 7-month CD at an enhanced rate. These odd little CDs are rarely posted. Instead, you should visit the bank during a quiet time of day, walk up to a new account rep and say: Do you have any promotional rate CDs, and if so, what are they paying? You will receive a CD that is essentially the same as those with more normal terms but paying a few dollars more.

When you are in a bank, be aware that you may be pitched for various investment products that are not FDIC insured. Always confirm that you have government insurance. I have been pitched annuities in place of CD's.

An annuity is a very different animal than a CD. These lock your money away for many years and add a layer of tax penalties on top of the penalties levied by the bank for premature withdrawal. And, unlike the CD, once you start annuitizing an annuity, a portion of the proceeds comes from your own money. For the first several years of one of these, you may be only getting your own money back, and you lose the right to change your mind and have access to the principal. Annuities can make good pensions, but they are not for savers who need ready access to their cash.

Don't forget, the best way to make a few extra dollars in a dangerous environment is to arm yourself with knowledge, beware greed and know whether your money is for immediate use or for an eventual pension.