First Choice Bank of NJ Offering Five Year CD at 2.5% APY

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First Choice Bank of NJ is offering a 5-year CD that pays 2.5% APY if it is opened with a Platinum Checking account.

First Choice Bank of NJ is offering a 5-year CD that pays 2.5% APY if it is opened with a Platinum Checking account. That's one of the highest rates in the country for a five year CD.  The rate is not listed on their website but I did call and confirm that the offer is valid. Others on BestCashCow have called and stated that the customer service rep did not confirm the offer. Be sure you ask for the one that requires a Platinum Checking account.

The CSR also told me that the Platinum Checking account requires a daily minimum balance of $500 in order to waive fees but this differs from the website which says that there is only a $1 minimum balance but a holder needs $25,000 in aggregated loan and/or CD and Savings balances to qualify. Based on this, if you opened a CD with at least $25,000 and put only $1 in the Platinum Checking account you could quality for the higher rate and avoid fees. I'd clarify this before opening the account.

First Choice Bank of NJ has $930 million in assets according to recent FDIC data. Its branches are located Northeast of Philadelphia near the NJ/PA border.

If you do open an account or speak to someone at the bank, please share your experience with the community.


Avoid Fraudulent Websites Purporting to Offer Better Rates through Brokered CDs

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Brokered CDs pay well below the best online CD rates and have ever since the advent of online banking. Do not be fooled. Any website or individual claiming that they can get you a better rate than the best available rate online is more likely than not an out-and-out fraud.

A close friend of mine who is an expert on financial fraud once explained to me that fraud is most prevalent not when times are especially good or bad, but when large parts of the population are anxiously looking for even just slightly better financial performance than the norm.  While savings and CD rates have been held at extreme lows for an unprecedented time due to the Federal Reserve’s intervention, we are now beginning to see some slightly more interesting CD rates.  However, people’s frustration over earning so little on their cash and their anxiety to earn more may now be opening the door to web fraud in the certificate of deposit space.

In fact, as CD rates start to head up, there is at least one website that is buying Google Adwords related to “Best Cash Cow” and “Bank rate” and claiming to be offering better rates on CDs than those found on BestCashCow.com. 

The website, whose name I will not list here because of the risk of inadvertently providing it with a valuable link, lists an office address on Wilshire Boulevard in Beverly Hills, an 800 phone number and a series of CD rates for 1, 2, 3 and 5 year CD products all of which are better than the best prevailing rates.  For example, the site claims to be offering a 5 year CD at 3.09%, while the best rate is currently 2.30%. 

The website also misspells several key terms and seems to be written by a non-English speaker, containing numeric and financial terms that make no sense to an American.  Nonetheless, some may be frustrated enough or fooled enough to call. 

Out of curiosity, I called the 800 number and was transferred to a man who was clearly an American (although given the quality of the phone call, I believe that he was in China or Thailand) who claimed that he could offer these rates on FDIC-insured CDs from banks like Barclays, GE and East West Bank because they are brokered CDs.

To be clear, brokered CDs are a real financial product, ordinarily offered through major investment banks and some online brokerages (such as TD Ameritrade and Fidelity).  These products offer account holders at those institutions the opportunity to divide up their money among FDIC insured banks within the umbrella of their investment banking or online banking accounts.   In 2008 and 2009, a safe strategy executed quickly by many was to move any free cash from an investment bank’s money market account into short term brokered CDs.

Brokered CDs, however, have never offered rates at or above the levels of the most competitive online banks.  In fact, the rates are always much lower. 

The fellow attempting to sell fake brokered CDs through his website – who incidentally would not provide his name by phone and was disappointed to learn that I was in my 40s and not a senior – claimed that the FDIC would have shut down his website if the rates were not real.  Unfortunately, the FDIC only monitors its member institutions, and while fraudulent financial websites may fall within the SEC or the Justice Department’s purview, one need only watch CNBC’s American Greed to know that the government simply cannot stamp out financial fraud.

In fact, nobody can control what happens on the internet and a fraudster can have a pretty good year if he can just trick one person (maybe one senior) into wiring him $250,000 for a brokered CD that doesn't exist.

The best that you can do is to avoid being the one who is tricked, and purchase CDs only directly from real banks, online and in branches, having verified their rates on BestCashCow.com. 

See all of the best 5 year CD rates here.


Bank Saver Update - Savers Earning More So Far in 2014

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Bank deposit rates have continued to move higher in 2014. View the top rates on savings and CDs and what we expect to happen during the rest of the year.

We just started the second quarter of 2014 and I wanted to check bank rates and see how they are doing compared to my forecast. At the beginning of the year, in my 2014 Savings Rate Outlook, I made the following predictions.

My outlook: Savings account rates will stay flat through 2014 although online savings account rates may increase by 20-30 percentage points. I project the highest online savings account next year will yield 1.75% APY. Short term savings rates will edge up slightly but longer term CDs (3-5 year) will continue the trend we have seen over the past six months and continue to move up. I expect we'll see the biggest increases in these longer duration CDs. We already have one credit union (PenFed) offering a 3%+ APY five year CD. Look for this trend to continue.

So, how are these predictions doing?

As the chart below shows, savings and CD rates are mostly flat. Since the beginning of the year, the following has happened:

  • 1 year average CD rates have fallen slightly from 0.348% APY to 0.346% APY.
  • 3 Year average CD rates have also fallen two basis points from 0.713% APY to 0.711% APY.
  • 5 Year average CD rates have risen from 1.083% APY to 1.095% APY.
  • Online Savings account average rates have risen from 0.712% APY to 0.739% APY.

So, for the most part, this follows my forecast. Now, let's take a look at the top rates for several products.

Top Rate Recap

Over the last quarter, top rates have risen a bit on shorter duration deposit accounts and significantly on 5 year CDs.

  • Online Savings: At the end of last year, the top online savings rate was GE Capital Bank at 0.90% APY. Today, five banks hold the top spot at 1.00% APY. This is still a long way off from the 1.75% APY I predicted one of the top banks would have. It's going to take some strong economic growth to reach this number.
  • 1 Year CD: In December 2013, Nationwide Bank held the top spot at 1.06% APY with a $100,000 minimum balance. Today BAC Bank Florida has the same rate, also with a $100,000 minimum balance. GE Capital Bank still sits right below the top rate with a 1.05% APY rate and a smaller $500 minimum balance.
  • 3 Year CD: In December, Salem Five Direct offered a 3-year CD paying 1.50% APY. Today, Navy Federal Credit Union offers a 1.55% APY CD with a $100,000 minimum balance.
  • 5 Year CD: At the end of last year, iGoBanking.com had the top rate with a 2.05% APY CD. Now, CIT holds the top rate with a 2.30% APY CD with a $100,000 minimum balance. GE Capital Retail Bank offers a 2.25% APY CD with a $25,000 mimimum.
  • Rewards Checking: Hope Credit Union and Money One Federal Credit Union both continue to have the top rewards checking rate of 3.01% APY for balances up to $10,000. Both credit unions are open to members from across the country.

Top rates are either flat or up, mimicking the averages. The 1.75% APY online savings rate is a stretch, but I'm hoping one bank will rise to the challenge. Come on bankers, let's give the people some yield.

Online Saving and CD Spread

The difference between average 1 year CD rates and average online savings rates surged to a new high at the beginning of 2014, as online savings rate averages rose sharply and 1 year CD rate averages stayed flat. On average, online savings account rates pay 0.393 percentage points more than 1 year CDs, up from 0.23 percentage points more at the beginning of 2012. As we've been saying, it currently makes much more sense to put money into an online savings account or money market account than it does to lock it away in a 1 year CD. The premium for locking up the money in a rising rate environment is just not high enough in most cases. This trend has continued into 2014.

General rate environment

The economy continues to muddle along, the same story it's been singing since 2011. A couple of months of optimism are followed by several months of poor indicators and spirits sink. The stock market has been powering forward but this seems more like a response to the Fed's easy money policy than a true indicator of underlying economic conditions.

The economy added 192,000 jobs in March and the unemployment rate held steady at 6.7%. While under Bernanke, the unemployment rate was promoted as a key indicator of when the Fed would raise rates, Chairwoman Yellen has backed away from such a black and white reading. So, just because the rate reached 6.5%, the Fed won't necessarily begin to raise rates. This will keep short-term deposit account rates from moving up very much unless the economy begins to show more life.

The unwinding of quantitative easing has helped boost long-term CDs. If the Fed continues to pare back its bond buying, five year CD rates will continue to move up.

It's unclear if the cold winter weather hindered hiring, but to me, it's clear that the economy is still weak, and that blaming low numbers on the cold weather is just a symptom of this weakness.

The news from Europe revolves around the Ukraine and Russia. These events could have an economic impact if Russia decides to raise gas prices significantly on Europe, providing more headwinds to an already anemic economy. Headline news about the risk of Italy, Spain, or Greece going under have faded, for now.

One piece of good news: the government avoided another protracted battle over the debt ceiling. The midterm elections should help further clarify the government's direction and hopefully some of Washington's gridlock will ease.

My outlook: I'm sticking with my 2014 predictions for now: Savings account rates will stay flat through 2014 although online savings account rates may increase by 20-30 percentage points. I project the highest online savings account next year will yield 1.75% APY. Short term savings rates will edge up slightly but longer term CDs (3-5 year) will continue the trend we have seen over the past six months and continue to move up. I expect we'll see the biggest increases in these longer duration CDs.

Savings Accounts or CDs?

The data continues to show that opening an online savings account is a better bet than a 1 CD and I expect this to hold through 2013. Online savings accounts have held the line over the past year and even though CD rates have stabilized and ticked up, the premium is still not enough to jusity locking the money away. With yields on 5 year CDs increasing, there is an argument to be made that it might be worth looking at a longer duration CD. Yields on the top 5 year CDs are over 2X the top online savings accounts. The 3% 5 year PenFed CD offered last year was certainly attractive and at the right rate, I could be convinced to lock up some money.

For money you want to keep liquid though, go with an online savings accounts. If you do want to invest in a 3 year CD, be sure to shop around. Some online banks and local and community banks pay decent rates. DO NOT simply put your money into a big bank. Their CD rates are generally terrible.

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Goldman Sachs Bank USA Launches Callable Step-Up CD

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Goldman Sachs and other investment banks are currently syndicating an FDIC-insured CD offering from Goldman Sachs Bank USA. The product is interesting, but involves significant risks, including the risks of low long term rates and a 15 year maturity. Therefore, depositors should chose shorter term Bump-Up CDs from Ally or CIT over this product.

Those willing to lock up their money in fixed income instruments over long periods are ordinarily compensated in the form of higher yields (unless the interest rate environment is such that there is an inverted yield curve).

CD rates however have been compressed for several years, and most CD purchasers have found little incentive to go out far on the duration curve.  Rather the more prudent course of action has been to stay in online savings accounts or lock into shorter duration CDs in order to avoid the risk of rising rates. 

Goldman Sachs is currently offering a CD product that not only delivers immediately higher yields (3.25%) but has step-up terms that provide some level of protection if yields were to go higher.  The CD, which pays interest semi-annually and is callable on each interest payment day after 2 years, steps up to paying 3.50% if it has not been called by March of 2021, then to 4% in 2024, 5% in 2027, and 7% in 2028.

In general, I like step-up or bump-up products as a hedge against rising interest rates.   I particularly like the fact that the current Goldman Sachs offering is an FDIC insured CD, unlike structured notes that can also have similar features but where the purchaser is taking on the credit risk of the issuing bank.   

The Goldman CD, however, lacks parity in risk.  Goldman is funding itself at a very attractive rate with an option to return purchasers’ money in two years.   Depositors, however, are taking on the following risk:

1)   The risk of having their money tied up in an illiquid manner for 15 years,

2)   The risk of earning 3.50% or less on their cash for the next 10 years and 4% on their cash for the next 13 years, and

3)   The call risk of having the CD returned in 2 years if interest rates stay low.

A depositor needs to understand that Goldman Sachs Bank will call the CD in two years in interest rates remain low.  However, it is very possible that CD rates could return over the next 6 to 24 months to levels where a 5 year CD is paying 5 to 6%.  Were that to happen, you would be earning a rate that is substantially below market and have your money tied up for a significant length of time.  Basically, the CD produces a “heads I will, tails you lose” type of outcome.

The opportunity to get a 3.25% yield on an FDIC-insured CD in the current market is very tempting.    More prudent depositors will forgo this temptation and look at 2, 3 or 4 year bump-up CD products –such as those offered by CIT Bank and Ally Bank - as being more appropriate for this stage in the interest rate cycle.  Those products are listed in the relevant pages of this site and discussed in this article.


Credit Union West Offering 3.15% APY CD IRA Rate in Arizona

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Credit Union West in Arizona is offering some very attractive rates on CDs and rewards checking accounts for those living in Maricopa or Yavapai counties.

A user just posted a comment about very attractive rates at Credit Union West in Arizona. I checked it out and the deals look pretty good. They are offering: 

  • A 60-month CD that pays 2.90% APY on balances from $10,000 - 49,999 and 2.95% APY on balances $50,000+.
  • A 60-month IRA CD that pays 3.15% APY on balances from $10,000 - 49,999 and 3.20% APY on balances $50,000+.
  • A checking account that pays 2.51% APY on balances up to $10,000 as long as you meet the minimum transaction requirements. To receive the rate a customer must have at least 15 debit card transactions each monthly billing cycle, be enrolled to receive eStatements, and have at least one direct deposit post and settle each month.

Both the 60 month regular CD rate and the IRA CD rate are amongst the highest rates in the country for that CD term. The 2.51% rewards checking rate is not the highest, but it is still a good competitive offer.

The catch is that you must live in either Maricopa or Yavapai counties or have a relative who is already a member of the credit union. If you don't happen to fulfill either of these criteria, then take a look at some of the credit unions in your area. Or, take a look at Pentagon Federal Credit Union which anyone can join and which is offering a 60-month CD for 3.04% APY.

Credit Union West, headquartered in Glendale, AZ is a medium sized credit union with $508 million in assets. It has 13 branches located around central AZ. On its website, Credit Union West says that is has an agreement to share branches at over 5,000 locations nationwide wherever the Co-Op Shared Branch sign is shown. At these locations you can make deposits, loan payments, transfers, and more. You can view other locations that are available by visiting the Co-Op Shared Branch website.

Thanks to Charlene for bringing this to our attention!


Even as a CD Alternative, the Latest Barclays Note Offering Is One to Avoid

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I have recommended debt-side Structured Notes as instruments to add to a balanced portfolio, but Barclays Capital's latest offering is one that I particularly dislike.

I have written about several debt-side bank issued Structured notes in the past (an overview of structured notes is provided here).  Structured Notes can offer investors much higher yields than savings and CD accounts.  Some Notes offer yields higher than bonds from equivalent credits and protect against rising interest rates.  Therefore I have suggested that investors allocate money to these instruments as part of a diversified portfolio.

In return for higher yields, investors may have to accept risk depending on the Note.  This risks can include:

1)   credit risk of the issuer,

2)   prepayment or call risk,

3)   liquidity risk (there is no secondary market foremost of these instruments),

4)   and, kill provisions that could result in interest not being paid for long periods (even the life of the bond).  

For these reasons, it is especially important when purchasing a Structured Note that the investor is being offered a return commensurate with the risk, that the risk is reasonable, and that the credit is strong.   While Barclays Capital is rated A by S&P, their current offering fails in the other respects.

Barclays Capital's current Structured Note offering (CUSIP 06741T4J3) is a 15 year Note which pays 6% in years 1 through 6 and 10% in years 7 through 15.  However, if 6 month USD LIBOR trades over 5%, a kill provision in the Note activates, and the Note pays no interest.

As this chart indicates, 6 month LIBOR routinely traded above 5% for the period from 1985 to 2001 and then traded above 5% prior to the 2008 recession. 

6 Month USD LIBOR 1985-2014

Barclays is billing the Note as an alternative to a CD that provides a steady stream of income if interest rates fall, or do not rise.  It is not a viable CD alternative for two reasons.  First, interest rates are rising and in a rising interest rate environment, a 15 year instrument is much more dangerous than a 1 year, 2 year or even 5 year CD.  Second, CDs guarantee some return if interest rates do rise and this interest rate does not.  In fact, the chart above shows that if we revert to a normalized interest rate environment at any point that this Note is still outstanding and you will likely be earning no interest for a long time.

To boot, this Structured Note is callable by the issuer at any quarterly payment date.  Therefore, the Barclays Capital is never taking more than 3 months of interest rate risk, but the purchaser is taking 15 years of interest rate risk.  In other words, the purchaser is taking all the risk here and the seller is taking basically none.

I have built a portfolio of Structured Notes for my own account and found many that I like (one that I particularly like was discussed here).   This is one that I particularly dislike.  It seems that Barclays is going after widows and orphans or at the very least after naïve investors who can no longer remember what a normal interest rate environment is supposed to look like.  Others will sleep better by checking out the latest short term CD rates on this site.  Caveat emptor!