Every once and a while I get an email from a reader that asks where he or she should invest $1,000.

My answer? An online savings account or a certificate of deposit.

Unfortunately, $1,000 just simply isn’t enough for you to invest in the stock market. It’s certainly not enough for real estate and it’s usually not enough for investing in any asset class.

(Click to continue reading…)

If you look at Ally Bank’s current rates, there appears to be a discrepancy in the way they’ve structured their rates. I tweeted about this last week and it appears the difference in rates has persisted through a recent rate drop, making it doubly curious. Let me explain what I mean.

As of today (June 22, 2009), here are the current rates of several of their products:

• Traditional 9-month CD: 1.75% APY
• No-Penalty 9-month CD: 2.15% APY
• Online Savings Account: 2.00% APY

Two things surprise me:

1. A traditional CD should never have a lower yield than a no-penalty CD of the same maturity. With a no-penalty CD, you have the right to close the CD before the maturity period without penalty. The bank can’t close it. You should be paying, through a discount on the interest rate, for that flexibility. When the no-penalty CD first debuted, its interest rate was a tenth of a percent lower than the traditional CD’s rate.
2. The no-penalty 9-month CD with a higher yield than the online savings account represents an opportunity. We’re in a period when rates on savings accounts and CDs are dropping. However, should rates ever make a turn and start rising, being locked into a CD might be bad news. However, with a no-penalty CD, I can close at anytime so the risk is minimal! There is no reason why someone should keep their funds in an online savings account when the same exact bank is offering a no-penalty CD option with a higher interest rate.

This morning I transferred all my funds from my Ally Bank online savings account into the 9-month no-penalty CD to get that extra 0.15% APY. If the two accounts weren’t at the same bank, I wouldn’t have done it because the transfer time would’ve cost me interest. However, anytime someone is willing to give me a $2 bill in return for a $1, I take it.

Is there something I’m missing?

For the longest time I thought a certificate of deposit came in one flavor – vanilla. I deposit some money into a CD, I wait until it matures, and then I decide whether I want to put it back in or do something else. Online banks offer better rates than traditional and you can get fancy by creating a CD ladder, but at the core a CD was a CD was a CD. Then I learned about Ally Bank’s no-penalty CD that lets you close a CD before its maturity without losing interest. OK, that was interesting, but it wasn’t all that exciting.

Then today, I read this Bankrate article about the different types of CDs and was surprised at all the options. I guess I had heard about several of them in the past but dismissed them as hokey (callable CDs? I’ve heard of callable bonds but never CDs). I think some of them are clever just to be clever (and so they can list more rates?) but overall it’s kind of a dry read… so I tried to make it a little more interesting.

How about we take a visit to the Certificate of Deposit Zoo?

(Click to continue reading…)

In mid-May, GMAC Bank changed its name to Ally Bank. With General Motors in the news every day for something negative, it’s hard to do business when everyone thinks you’re about to go out of business. The funny thing about it all is that GMAC Bank’s parent company, GMAC Financial, hasn’t been a part of General Motors for several years. When you have financial companies in distress and auto companies in distress, a bank that people think is inextricably linked to auto company is in some deep trouble.

So, they changed their name.

But are they a good bank to do business with? Let’s find out.

(Click to continue reading…)

When I first opened up my Vanguard account a few years ago, I requested all sorts of fancy investment brochures. I had just started Bargaineering and had a voracious appetite for financial information and fancy words like annuities, in all their flavors, really intrigued me because I had never heard of them. One of the books I requested was Vanguard’s booklet on annuities, an investment vehicle I would later learn is rife with ripoffs and unscrupulous characters.

I never read the booklet until my wife and I were cleaning out some documents and they remind me a lot of long term CDs, with a few wrinkles. If there’s anything I’ve learned in the last few years is that the financial community has a funny way of coming up with a million different ways to do the same thing, if only to be able to say they have a hot new investment option for you!

(Click to continue reading…)

A few weeks ago I asked for your opinion of the best high yield savings account and the one thing I learned something very interesting. With interest rates as low as they are, with many banks offering less than 2%, it’s the other services and amenities that dictate which bank you’ll work with.

(Click to continue reading…)

Patelco Credit Union is a credit union out in California that was started, in 1936 with $500, to support the financial needs of the employees of Pacific Telephone & Telegraph Company. Since then, they’ve grown to $4 billion in assets, 250,000 members, and now serve over a thousand businesses and communities.

So, why mention Patelco? I mention them because they offer a 7.00% APY new member certificate of deposit that more than doubles the highest rate on my list of best certificate of deposit rates. OK, before you get excited, the New Member CD has a maximum balance of $1,000 and a minimum balance of $1,000 and is, effectively, a $70 bonus for new accounts.

So why bother even mentioning this when most of us won’t qualify to join the credit union?

It’s a little reminder that your local bank or credit union might be the best offer available even if you don’t see it listed on nationally available rate lists. If I was eligible and looking for a credit union, I’d give Patelco a good look. The new member CD promotional offer gets me in the door. The 2.73% APY CD 12-23 months is pretty competitive and their 5.00% APR 30 year fixed mortgage loans is not bad, each probably beats locally available banks in those categories.

I’m not recommending that you open a Patelco Credit Union account (but you should have a credit union account somewhere) but I do recommend that you check your local banks and credit unions to see how their rates compare to the bigger banks, you may see something you like.

For the last few months, until Congress raised FDIC insurance to $250,000, a lot of people were absolutely freaking out about their banking deposits. The largely symbolic move from $100,000 to $250,000 affected practically no one at that point but it made me wonder how the wealthy protected their liquid assets. I didn’t consult with any professionals on this but there are two very simple ways: CDARS (Certificate of Deposit Account Registry Service) and Treasury notes.

CDARS

The Certificate of Deposit Account Registry Service is something that your bank may offer and it can protect your deposits for up to $50 million. The program is very simple and essentially handles the paperwork of opening up Certificates of Deposit at multiple banks. There is a “loophole” in the FDIC insurance in that it covers you for $100,000 ($250,000 until December 2009) per person per institution. CDARS offers $50 million in protection because they open up CDs at multiple partner institutions. You could do it yourself, but they are simplifying the process and likely taking a little bit in interest to pay for expenses and make some money (I wonder how those rates compare with the best CD rates I’ve found?).

Treasury Notes

All Treasury Notes are backed by the full faith and credit of the United States government. Should that level of infinite insurance fail, the dollar would be worthless and your last concern would be over your deposits! We saw many institutions rush to put their money in short term notes when the credit crisis hit its apex a month or so ago and that was because those notes are protected 100%. As a consumer, you can buy Bills, Notes, Bonds, and Treasury Inflation-Protected Securities (TIPS) through Treasury Direct, the Treasury’s online management system.

For people like you or me, opening up a few high yield savings accounts will probably be sufficient to cover our liquid asset protection needs.

(Photo: refractedmoments)