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Why I Opened A Rainbow Savings Account

finger touching a key on a calculatorLike many, I have trouble keeping money in a savings account.

I don’t blow it on things I don’t need. Rather, once I get my hands on it, I invariably invest it in a CD with a locked-in yield.

So, to test my self-discipline, I opened a Rainbow Savings Account at Wilshire State Bank.

This nationally available installment savings plan calls for making regular deposits into a savings account – and keeping them there – until the balance reaches a specified goal.

First, you select your goal, from $1,000 up to $100,000. Then, you pick a time period to reach it – from 12 to 36 months.

The interest rate is fixed. The longer the savings period, the higher the rate.

Also, Rainbow accounts automatically funded from another Wilshire account earn higher rates than those funded from other sources.

Once you’ve selected your savings goal and term, you make monthly deposits in identical amounts, producing an ending balance (principal and interest) equal to your goal.

Anticipating large property-related expenditures this fall (e.g., a replacement well-water tank), I opened a Rainbow account last September with a goal of $20,000 and a 12-month term.

Because I chose to fund from non-Wilshire sources, my rate is 1.26% APY. It would have been 1.51% had I established another Wilshire account and arranged for automatic monthly transfers.

Its best yield is 2.02% for 36 months with automatic transfers.

Since establishing the account, I’ve been accumulating dribs and drabs of interest from various CDs in an Ally Bank checking account, then depositing a check by mail with Wilshire before the monthly due date.

Because it’s an installment savings account, not a CD that involves a lump-sum deposit, I earn less interest than my 1.26% APY would suggest. In fact, only $130.40, or 0.65% of the $20,000 goal.

Nevertheless, it’s a relatively pain-free way to save.

Maybe too pain-free, though, for someone with my proclivities.

For one thing, the Rainbow plan lets me miss three savings installments before I’m “punished” – by having my account closed or converted into a lower-yielding savings account.

Moreover, I can close the account any time, without penalty other than forfeiture of accrued, unpaid interest (interest is paid quarterly).

Thus, there’s always the temptation to chuck my Rainbow plan and put the money into, say, a PenFed 3-year CD at 1.85% APY.

I’m doing my best to resist.

I really need a water tank that doesn’t leak.

Wilshire State Bank (www.wilshirestatebank.com) has 24 branches in California, Texas, New Jersey and New York. But Rainbow plans can be opened online and are available to savers nationwide.

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