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WSJ Article - CD Rates Starting to Rise

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This Wall Street Journal article describes what I've mentioned in my last two weekly summaries. CD rates, especially long term ones, are starting to rise. Even though the Fed is expected to cut rates today by another 25 basis points, there are expectations that the Fed will signal a pause in its rate cutting. The article also mentioned other factors that are causing rates to rise: higher Treasury yields, reduction in bad news from the credit markets, rising concerns over inflation, and the banks' needs of raising deposits.

Several banks and their new higher CD rates were mentioned in the article. I've mentioned most of these in my previous posts. These include:

For other high CD rates please see my weekly rate recap. I just did a post on E-LOAN and its new higher long-term CD rates.

Bank of America was also mentioned as one of the banks raising its CD rates. However, the article didn't mention the current rates. They used to have some decent rates on its 4-month special online-only CD, but the current rate is only 2.70% APY (yield may vary based on your state). Their standard CD rates may have increased lately, but they're still low. You need a term of at least 48 months for a yield over 3% APY.

One person interviewed in the article was considering a 20-year 6% CD through Charles Schwab. It appeared to be a brokered CD that was callable after 1 year. The person considering this CD admitted that it had risk due to the long term and the callable feature, but it did guarantee 6% for at least a year. If it is a brokered CD, you may be able to redeem it before maturity. But the broker would attempt to find someone else to buy your CD at the going market rate which could mean a loss worse than most banks' early withdrawal penalties. This FDIC article has more details regarding brokered CDs.


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Comments
15 Comments.
Comment #1 by Anonymous posted on
Anonymous
I purchased 2 CD's brokered thru Schwab 4 or 5 months ago. One pays 6.25 and the other 6.50%. Each is for $5000.00 and is callable after 1 yr. These are in my IRA account and since I am an older person looking for income and not interested in cashing them in they work just fine for me. I'm not sure I would recommend them for younger people as they should look for some appreciation on long term investments. WORD OF CAUTION. The FDIC insurane on these brokered cd's is with the bank and not the broker. In my case, I already had mamimum FDIC amount with Countrywide and since one of these cd's was with them I had to withdraw some funds from my savings-link account to stay under limit. Not a big problem but people considering these brokered cd's should keep this in mind.

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Comment #2 by Chester (anonymous) posted on
Chester
I took a gamble with callable CD's before and got hit hard. I will never do it again.

On a different note:

Does anyone know if Vintage Bank of Texas requires an in-branch visit to open up their Rewards Checking account:

http://www.vintagebank.net/rewards.html

Currently 4.25% APY with no balance cap.

Also, does one need to be a Texas resident?

Thank you

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Comment #3 by Anonymous posted on
Anonymous
To Chester. Could you explain how you got hit hard on the callable cd's and why you call buying them a gamble. Assuming you did not sell them or cash them in early I don't see how you took a hit.

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Comment #4 by Sofa King Frustrated (anonymous) posted on
Sofa King Frustrated
Breaking News:

Fed cut the rate 1/4 of 1%, as expected.

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Comment #5 by Paul (anonymous) posted on
Paul
Yeah, Sofa King, I just heard the breaking news about the .25% cut. The Fed Fund Rate stands at 2%.

Let's hope this is the last cut.

I, like Chester above, needed to cash out my callable CDs early and took a bigger loss than if I had had a regular CD.

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Comment #6 by Bozo (anonymous) posted on
Bozo
Re: Schwab Callable CDs

My friend, give me the name of the person you work with at Schwab to get those fantastic callable CDs. I'd take over 6% callable in a heartbeat. I have a Schwab brokerage account and I've never seen anything close to that in the last year.

Yours,

Bozo

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Comment #7 by Anonymous posted on
Anonymous
Bozo. I went back over my account and the callable cd's I mentioned above were purchased in June 2007. So longer ago than the 4 or 5 months I thought but still within the year you mentioned. I bought these on line and don't work with anyone at Schwab, Now they have some listed at 6% with the first callable date of May 2009. They also have some AAA rated and insured Muni bonds paying 5.29% Fed tax free and maybe state tax free. I thought I would mention the Muni bonds since I think you are the poster who always says to diversify.

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Comment #8 by tuphat (anonymous) posted on
tuphat
Hate to be stupid, but: Can anyone be specific as to how to find the callable CD? I have a Schwab trading account, but exactly how do I get one? TIA

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Comment #9 by Anonymous posted on
Anonymous
Log in to your Schwab account. On the bar across the top you will see several choices. Point mouse to TRADE and the bar below it will change choices and you want to click on BONDS. You are there. The window that opens will list CD"S, treasury's, corporate bonds, muni bonds, and etc. CD's are listed on the top row and 6% is listed under 20 years on the right hand side. Click on the 6% and another window will open with a description of the product and on the extreeme left you will see a BUY button if it is during trading hours. Good luck.

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Comment #10 by Bozo (anonymous) posted on
Bozo
Oops, a 20 year callable CD?

That's a different issue (no pun intended).

No wonder I couldn't find it.

Yours,

Bozo

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Comment #11 by Cyclone (anonymous) posted on
Cyclone
Anonymous first poster,

I think we might be a little confused here. Even though a brokered CD's FDIC insurance is with the bank, not the broker, it is in the category of the brokerage account.

As an example (not actual #s) w/ all the money at Countrywide:

Me - $100k bal / $100k insured
Me w/ Mom - $200k bal / $200k insured
Me Regular Brokerage - $100k bal / $0 insured
Me TOD Brokerage - $100k bal / $100k insured
Me IRA Brokerage - $250k bal / $250k insured


Thus, even though all the funds are "on deposit" at Countrywide, each category is insured differently and the titling of the brokerage account determines its FDIC coverage. Thus, in my example and in your situation (as described thus far), your IRA would be insured for up to $250k b/c Countrywide directly does not offer IRA products.

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Comment #12 by Michael (anonymous) posted on
Michael
Cyclone, forgive me if I misread your post. (If you are meaning "Me w/Mom" as a joint account, I apologize.)

FDIC and NCUA Insurance for an account with $200,000 balance: It must be "Me...with two qualifying beneficiaries." So, I could have a $200,000 CD as long as it is Me, payable on death or in trust for Mom and Sister, as one example.

If it was just Me POD Mom, it would only be $100,000 insurance.

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Comment #13 by Anonymous posted on
Anonymous
You can have 200k insured with a joint account (me and mom) but as the FDIC states, both parties would have equal access to half the funds.

Straight from the FDIC website:

A joint account is a deposit owned by two or more people. To qualify for insurance under this ownership category, all of the following requirements must be met:

1. All co-owners must be people. Legal entities such as corporations, trusts, estates, or partnerships are not eligible for joint account coverage.

2. All co-owners must have equal rights to withdraw funds from the account. For example, if one co-owner can withdraw funds on his or her signature alone but the other co-owner can withdraw funds only with the signature of both co-owners, the co-owners do not have equal withdrawal rights.

3. All co-owners must sign the deposit account signature card unless the account is a CD or is established by an agent, nominee, guardian, custodian, executor or conservator.

If all of these requirements are met, each co-owner's share of every account that is jointly held at the same insured bank is added together with the co-owner's other shares, and the total is insured up to $100,000. The FDIC assumes that all co-owners' shares are equal unless the deposit account records state otherwise.

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Comment #14 by Anonymous posted on
Anonymous
I am the 1st poster who got this whole FDIC thing started. I admit I am not well versed on the ins and outs of cd's and FDIC as I don't like cd's but still use them at times. I am aware there are ways around the $100000 limit but from what I have read on this site at various times there seems to be disagreement over what works and what doesn't. Anyway, the intent of my original post was to alert people that if they have there own cd's and also brokered cd"s they could be over the limit. Question? In my case I had cd's in my name and a brokered cd in my IRA account and all together they totaled more than $100000. Simple yes or no will work here. Was I over the limit or not. Thanks in advance for someone's answer.

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Comment #15 by Anonymous posted on
Anonymous
Cyclone said, "Countrywide directly does not offer IRA products".
Yes, Countrywide does offer IRA products. I currently have a Traditional IRA CD with Countrywide that I opened directly with Countrywide. They do not offer Roth IRA products,however, as I did try and open a Roth IRA with them as well.

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