TESS VIGELAND: This week, President Bush outlined a series of recommendations to help homeowners hit by the subprime mess. Whether any of it will have a calming effect on the markets is anyone’s guess.
So are there other places to put your money that won’t give you a case of indigestion? There’s the good old-fashioned certificate of deposit: the CD. And Marketplace’s Jill Barshay tells us some banks are offering mighty nice incentives.
JILL BARSHAY: Countrywide is the biggest home loan company in the country. And it’s been getting a lot of bad press about its shaky subprime mortgages. But it also owns a bank. And that’s good news for customers because Countrywide’s been raising its CD rates.
Pierre Habis oversees its deposit business.
PIERRE HABIS: Currently, we have the number one 12-month CD in the country, and that is 5.65 plus annual percentage yield or plus percent.
That’s 2 percentage points more than what many banks are offering. And it’s attracting the rate shoppers.
VIVIAN FALVO: It’s money. It’s money. I move it. If I find a higher rate, I move the money. I close out the CD, I open up a new CD.
That’s Vivian Falvo. She was opening up a CD at a Countrywide branch in Long Island, New York.
FALVO: Every week, I start to look. And see what’s going on. I send money all across the country. If one bank in California is offering a high CD rate. I call them up, I say, would you send me an application? And they do. And then when my CD comes due, if that rate still is applied. All I do is get a check, fill out the application and mail it. I don’t think it’s a big deal.
But it is a big deal to the mortgage industry. Banks with big mortgage divisions are the ones that are luring in customers with high CD rates. Institutional credit markets have dried up. They need to increase deposits so that they can keep issuing new home loans. Take IndyMac.The mortgage lender bumped up its 5 month CD rate to 5.7 percent this past week.
Bankrate.com is one of many places that rate shoppers can go to compare rates. Laura Bruce tracks the CD sector for the website. She says these high-yield CDs are legit.
LAURA BRUCE: These aren’t junk that you see in the bond market. These FDIC insured Cds don’t carry any of that risk.
If your bank fails, Federal Depository Insurance gives you your money back in a business day or a two, plus interest, up to $100,000.
In the Countrywide branch this week, clerks were showing customers how to double and triple their FDIC coverage. You can open joint and trust accounts or put a CD in a retirement account.
But Bruce says always check that the CD comes from an FDIC bank.
BRUCE: Earlier this year we had an incident with a financial institution called Federal Savings, which was not a bank. Sounded like a bank, they had a website that looked like a bank website. And they were selling these 8% CDs. People put millions of dollars into them. We got heartbreaking e-mail from people who had sent their money and were not sure if they were going to see it again
To make sure this doesn’t happen to you, ask about the fine print.
And remember, it’s fine to ride the rates as long as you wait for one CD to mature before you flip to another. Otherwise, you’ll be penalized for an early withdrawal.
In New York, I’m Jill Barshay for Marketplace Money.
Marketplace is on a mission.
We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.
Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?