While everybody’s focus is on the stock market and at what hour Federal Reserve chairman Alan Greenspan will or won’t send interest rates up, the average guy is missing a bet by not getting a better deal from his bank.
A bank? (Yawn.) Now that’s not a very sexy subject compared with the Dow Jones industrials, is it?
No, but only about half of consumers own stocks, while nearly all of them have some type of bank account. There are trillions of dollars tied up in those accounts, and lots of people are taking a low-rate beating on many of them.
With a little effort, they could improve their bank earnings by 60 percent or more. In contrast, the Dow rose by about 23 percent in a recent five-month period.
The biggest mistake: Automatically keeping all your savings and CD accounts in the same place you keep your checking. Why do you think the bank enticed you with a “free” or low-cost checking account in the first place? To get their hands on your savings, investments and loans, that’s why.
Here’s the game plan to earn more money:
– Find the highest-paying outfit in town. The differences in sleepy old plain-vanilla CD accounts can be mind-boggling. For example, my spot check turned up a market where the yields on one-year CDs ranged from a high of 6 percent to a low of 3.7 percent!
That’s a difference of $230 in interest per year on a $10,000 account, but mathematically it translates into earning 62 percent more at the top-paying local bank versus the lowest-paying institution.
Yet, there are still people who keep those 3.7 percent certificates parked in a drawer because they don’t know any better!
(The 3.8 percent, by the way, was being offered by two outfits that recently merged, which tells you something about the effect on consumers of big bank marriages.)
– Go out of state to earn the highest yields. The same $10,000 invested in the average one-year CD across the country, which pays 5 percent, would earn $500. That’s $130 more than the low-paying 3.7 percent CD I mentioned, and represents a 35 percent improvement in earnings.
But the best deals of all, as of May 13, were a one-year CD from Providian National Bank in Concord, N.H. (800-414-9692), which offered 6.05 percent, or Safra National Bank in New York (800-223-2311), which paid 6.01 percent. Both required a $10,000 minimum.
By going out of state, you can usually earn a percentage point more on CDs, and more than double what most local banks pay on money market accounts. The typical MMA in most cities yields about 2.5 percent, but you can get 5.75 percent on a $10,000 deposit at Atlantic Bank and Trust in Boston (800-727-2223).
You say you’re leery about sending your money a couple of thousand miles away to some outfit you don’t know? Relax. Not only are most of the nation’s top-yielding banks rated three stars for safety by Veribanc Inc., a respected independent firm, the banking industry as a whole is superstrong these days, making money hand over fist.
– Ask your bank to “match the rate.” This is a trick they hate with a passion. Say your accounts are at Megabuck Bank, which offers 4.25 percent on a one-year CD, but you see a Friendly Federal ad paying 5 percent. Tear out the ad and show it to the guys at Megabuck and ask them if they’ll match it. You may have a better shot at it than you realize; some account reps have the authority to raise the yield by at least one-quarter percent on the spot.
– Beware of “bonuses” and other incentives with “package accounts.” To rope you in, the institution may add a quarter-percent or half-percent to a CD yield if you agree to also open other accounts totaling “X” dollars. But odds are you can probably earn higher yields, and enjoy cheaper fees, by splitting the business among different banks.
– Buy high-yield bank CDs through your broker. Many brokers peddle CDs insured by the Federal Deposit Insurance Corp. that offer better yields than what average institutions pay. There’s nothing wrong with purchasing CDs this way, but the truth is that by doing business directly with the bank you can probably earn another one-quarter percent more.
– Credit unions pay more than banks on savings and CDs. Anywhere from two-thirds of a percent to a percent-and-a-half, in fact, depending on the maturity of the CD. You can probably find a credit union to join through a church, through where you work or by checking the Yellow Pages. You’re likely to earn more on your savings and pay lower fees to boot.
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Robert K. Heady is the founding publisher of Bank Rate Monitor and is the co-author of the book, “The Complete Idiot’s Guide to Managing Your Money.” You can write to him in care of this newspaper or send e-mail to jrnl8888@aol.com.
