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Great CD And IRA Rates....But

wilcom
  |     |   14 posts since 2023

IRA and CD rates are real good but the CD disclosures state;

"Compounding Frequency: Dividends will not be compounded.

Crediting Frequency: Dividends will be credited to your account at maturity. Alternatively, you may choose to have dividends paid to you or

to another account every month, every quarter, or semiannually rather than credited to this account."

I have never seen no compounding of interest for dividends??? If that is True then why would I put my money in if no interest on dividends. Losing a $1,000 in interest on $10k in dividends for $100Kinvestment for 2 years? Nah

Another potential gotcha is how to open any account. They are not digital so you have to open a "request" online and then they will call you to setup the account and you must sign docs and get them back somehow. I talked with the CSR and he was pretty abrupt and matter of fact...he kept dancing around how you send the docs back and if a secure link was provided or mail in only and I never could get an answer out of him. Opening an IRA also seemed complicated and the fact that they had not IRA specialist available was worry some.

Small bank, small minds, small service and no reliable security I could find.

Has anyone dealt with them and can attest to the opening and security issues and why the CD's dividends are not getting interest?

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7
Rickny
  |     |   1,254 posts since 2017
 Brokered CD's usually pays interest on regular intervals (for example, monthly, quarterly, or semi-annually). However, unlike CDs purchased directly from a bank, brokered CDs generally pay simple interest rather than compound interest. This is not uncommon.
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5
denki
  |     |   154 posts since 2019
Keep in mind:
1. This place requires a HARD credit pull not just a soft pull. So you have to decide if it's worth it to suffer a hard pull on your credit score to open a CD. Another question to ask is if the hard pull is just when you join, or even once you're a member, do they have to do a pull each time you want a new CD with them? (I know some places whose software requires them to do that before you can open any new CD accout, even if you're already a member!)

  • Does American 1 perform a hard pull on my credit?
    • Yes, American 1 Credit Union requires all new members to complete a hard credit pull to open an account.


2. No IRAs for the CD promos.  

  • Are IRA Share Certificates included in this promotion?
    • No, IRA Share Certificates are not included for this specific promotion.
3. In past experiences with places like this, it can take some time before everything is done and you're a member. During all this time, the CD rate might very well drop. If that's the case, you suffered a hard pull for nothing - something another credit union or bank will notice if you then try to go somewhere else after getting a hard pull from these guys. I doubt they guarantee the rate while they process your application to join.

I'd be interested in hearing from others too though.
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4
wilcom
  |     |   14 posts since 2023
Thank you all, very informative.
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2
me1004
  |     |   1,377 posts since 2010
P_D has it right about the compounding. That actually has a name for it, it is called "simple interest." I've had a couple CDs over the years that paid simple interest.

I addition, without any interest being paid during the term of the CD, you do not pay any tax on interest until it is paid at maturity. If it doesn't mature untill after the current tax year ends, then you get no tax on interest, your tax obligation is delayed/deferrred, just like it is in a traditional IRA (just that one point the same, there are other rules regarding IRAs). Depending on your circumstances, that can be a good tax benefit -- or not. It will give you that much less income during its term, but it will come out all in a lump sum at the end, which would boost that year's income.

You should also look into the details of how taking interest payouts quarterly or other frequency might or might not affect the total interest you earn during the term.

Note, if you choose the option of having the interest paid out during the term, that will create a tax liability as you go, but there will be less income at maturity. You also could then invest that interest elsewhere and earn more money on it. Do the math, that might be a benefit, or not. In effect, this CD puts you in control of compounding. The paid-out interest would not be considered in determining the APY whether paid out or not -- so I think the math will indicate you would come out better having it paid out. But again it depends on your income circumstances.

So, in the end, this simple interest could be better than compounded interest as compared to the same APY on a CD that does compound.
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