4.30% 9-Month CD at a California Bank - Rate Bump Feature (First Federal)


First Federal Bank of California is offering a special 9-month CD with a yield of 4.30% APY. The minimum deposit is $500. It has an auto rate bump feature that's tied to the 10-year Treasury rate. If the 10-year Treasury rate goes up, your yield goes up accordingly. However, if the 10-year Treasury Rate goes down, your yield remains where it is. The yield is limited to 9.99%. Potential rate increases will only occur at the end of each calendar quarter.

For those worried about inflation forcing rates up, this seems like it could reduce the risk. The current yield of 4.30% APY is very competitive even without any rate bump feature. However, since it's new, the rate is probably more competitive now than it will be in the future. So make sure you don't blindly let it renew.

This bank also offers a reward checking account. The current yield is 4.16% APY which is lower than the yields of the average reward checking account. Also, it requires more work than what's typically required (see post).

Another thing to note about this bank is that it also has an internet bank called FirstFedDirect which offers a 3.01% APY online savings account and CDs. Many have been upset that FirstFedDirect only accepts deposits from people outside of California. They should appreciate that this special bump 9-month CD is 105 basis points higher than the 9-month CD offered by FirstFedDirect.

The bank is another California bank that has been hit hard by the mortgage mess. When I first reported on FirstFedDirect two years ago, the bank had a rating of 4 stars at Bankrate.com. It's now down to the lowest rating of 1 star based on 3/31/08 data. However, BauerFinancial gives it a higher rating of 3 stars (adequate). This is also based on 3/31/08 data. As I recommend with any bank, it's best to keep below the FDIC limits. The bank has been FDIC insured since 1935 (FDIC Certificate # 28536).

Thanks to the reader who emailed me info on this CD.