Dedicated to Deposits: Deals, Data, and Discussion
DETAILSINSTITUTIONAPYMINMAXPRODUCT
GiftsforBanking.com0.25%$25k-5 Year CD Gifts
Accounts mentioned in this post. Rates as of July 30, 2014

Higher 5-Year CD Rate at GiftsforBanking.com - Does Gift Make it Worthwhile?

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For all of this year the CD rates at GiftsforBanking.com were too low to make the gifts offered by the bank worthwhile. A recent 5-year CD rate hike may have changed this for some people. The new 5-year CD rate is 1.50% APY as of 7/9/2012. When you combine this with a gift, it can make the CD look appealing compared CDs from other banks.

You can get a yield that's 0.25% higher on a 5-year CD at iGObanking.com (GiftsforBanking's sister internet bank).

You can also get higher 5-year CD rates at internet banks like CIT Bank which has a 5-year Jumbo CD with a 1.90% APY and Barclays which has a 5-year CD with a 1.80% APY. At all-access credit unions, you can get even higher rates (2.25% APY at Fort Knox FCU and 2.17% APY at Melrose Credit Union).

If you think the gift that you will receive at GiftsforBanking.com has enough value, that may make the GiftsforBanking CD a better deal than those other CDs. Make sure you don't underestimate the value of the higher interest rate. If you choose this 1.50% CD instead of a 2.00% CD with a $10,000 deposit, you'll earn about $250 less interest over the 5 years ($10,000 x 5 x 0.005 = $250).

As you start the online application, you can select from one of many gifts. They value goes up with the larger tiers which range from $5K to $100K. One example of a gift for the $10K tier is a Samsung 32" LCD HDTV (1080p Resolution). A similar version of this is listed at Walmart.com with a price of $449.54.

There are some important downsides with choosing a gift instead of a higher rate:

One downside is that the bank will determine the value of the gifts and use that value when they send the 1099-INT. That value is likely to be higher than what you could get if you did your own shopping. The higher value reported on the 1099-INT will cost you in taxes. If you decide on a gift, make sure to call GiftsforBanking to learn what the value of the gift will be reported.

Another downside to the GiftsforBanking CDs is the early withdrawal penalty. The penalty for terms over one year equals the value of the gift (including shipping and sales taxes) plus six months of interest of the amount withdrawn. Refer to the GiftsforBanking.com disclosure for more details. The gift value adds quite a bit to the early withdrawal penalty.

When I called the bank last year I was told that the CD rate locks at the date of the application, and you have 14 days to fund the CD. This is important since the bank's rates can have big drops. Several readers have reported a slow CD opening process and poor customer service. I have more details in my previous GiftsforBanking.com CD review. Several readers shared their experiences with opening these CDs in the comments of that post. There are also more comments in this forum thread and in the GiftsforBanking.com reviews section.

GiftsforBanking.com is part of iGObanking.com which is a division of Flushing Savings Bank, FSB, a New York bank with $4.36 billion in assets and 16 branches. The bank's overall health score at DepositAccounts.com is 3 stars (out of 5) with a Texas Ratio of 26.82% (average) based on March 2012 data. It has been a FDIC member since 1943 (FDIC Certificate # 16049).

Searching for the Best CD Rates

To search for the best nationwide CD rates and the best CD rates in your state, please refer to the CD rates section of DepositAccounts.com.


  Tags: GiftsforBanking.com, CD rates

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Comments
5 Comments.
Comment #1 by pua posted on
pua
GiftsForBanking is close to being a scam against the taxpaying public.  Here's how it works.  The bank sets an outrageously high valuation on the "gift" you get for opening the CD.  That valuation is reported on your 1099-int, so you must pay the income tax on that valuation.  You might end up slightly ahead of the game, because the tax you owe might be slightly less than the price you would actually pay for the "gift" if you shopped for it when it is "on sale."  But the bank makes a huge profit because the bank gets to write off as a business expense the full high valuation they place on the "gift", even though they  actually buy the "gift" for a low price which they negotiate with a wholesaler for a bulk purchase of a large number of "gifts."  It's all perfectly legal.  But what it means is that the federal government ends up collecting a lot less tax overall than they otherwise would collect because the bank's corporate tax rate is a lot higher than the individual gift recipient's tax rate, so the deduction of the super-high-valuation as a business expense by the bank outweighs the tax paid by the individual recipient of that gift.  The bank makes a profit on the tax deduction, and in addition the bank pays a lower interest rate to the CD-buyer than the buyer could get at the same time for the same amount of deposit at a different sister bank.  As an example:  Last year I opened a gifts-for-banking CD for $50,000 and got a "free" TV as my "gift."  The TV would have cost me about $350 on sale at a discount store.  The bank reported its valuation as slightly more than $1,000 on my 1099-int, so I had to pay about $280 in income tax on it.  This saved me about $70.  But the bank got to write off more than $1,000 as its "cost" of the TV, thereby saving more than $500 on its federal income tax and additional money on its state income tax.  And the U.S. government lost more than $220 -- the difference between the $280 extra tax I paid and the $500 tax the bank avoided paying.  Multiply this by however many thousands of "gifts" the bank is giving away to find out how much our government is losing, which must be made up by raising tax rates on honest taxpayers.

3
Comment #2 by Anonymous posted on
Anonymous
Well done, Pua, thank you. For those of us that pay very little, if any, taxes, it's a way to get the kids a popular device without using any cash, or get that thing that looks attractive but you'd never actually pay for. I have done this for 2 kayaks ($10K for 5 yrs), an ipod, and a foosball table. It's been fine with me, but you're probably right in that it isn't a good deal for USA. Nevertheless. I like getting the gift upfront, and dont feel too bad if it turns out to be a bust- I still get a bit of interest on the CD. Cheers.

2
Comment #3 by Anonymous posted on
Anonymous
pua #!. So a bank finding a perfectly legal way to earn a tax break while simultaneously benefitting a depositor "is close to being a scam against the taxpaying public."  I assume you've never itemized your deductions?

2
Comment #4 by Paoli2 posted on
Paoli2
Why is it many years ago, we used to always get gifts for CDs like toasters, stuffed animals etc. and they were never put on our 1099s.  This seems to be a recent change that we have to declare gifts.  Doesn't matter to me anymore because I haven't gotten a gift in years unless you want to consider that tiny cheapo box of Valentine candy one bank was giving out.  It never got put on the 1099 either.

1
Comment #8 by RJM posted on
RJM
I find it very hard to believe that they could write off $1000 as a business expense if the item only cost them $350 or whatever.

Or else they would have to show a corresponding short term gain.

1