Best Local Cd Rates

Monday, September 8, 2008 Best Local CD Rates Compared Copyright © 2008, Greenwich Financial Management Inc., a registered investment advisor. Last week, we discussed the best CD rates available nationwide through Internet direct banking. I received responses from some readers that they appreciated the article but would prefer to see the best available deals available locally. Some of my respondents are not accustomed to Internet dealing and understandably prefer to have a relationship with a local bank. On September 5th and 6th, I drove to a number of local banks to ask for their CD quotation sheets. Fortunately, I found that local rates are quite competitive. Also, the local banks in many cases have smaller limits for investment size versus the Internet direct banks. As with our national examples, all quotes are for FDIC insured deposits.

Best Local CD Rates (APY %)(9/6/2008)

3

6

12

18

24

36

48

60

Min

Bank of America

1.25

1.35

3.15

2.95

3.05

3.35

3.45

3.75

small

Bank of Greenwich

3.00

3.50

4.00

3.25

4.25

4.50

4.00

5.00

$1,000

2.20

2.00

2.00

2.00

3.25

3.50

3.80

4.00

$500

2.50

2.95

2.50

2.75

3.00

3.00

3.50

$500

1.50

2.00

2.25

2.25

2.50

3.00

3.00

$1,000

Term (months)

Citibank Greenwich Bank & Trust JP Morgan

3.00

Chase People's United Bank

2.50 Plus Acct

Wachovia Best National Rate

3.50

2.50 Plus Acct

2.00 Plus Acct

4.00 (7 mos.)

4.10

4.02

4.35

2.75 Plus Acct

3.25 Plus Acct

2.50 Plus Acct

3.00 Plus Acct

4.50 4.45

4.50

4.71

5.00

4.00 Plus Acct

small

5.35

small

5.15 $10,000

Generally speaking, Wachovia is offering the highest yielding CD’s in our area. Their two year quote matches the best available on the Internet, and their five year quote exceeds it. Wachovia’s well-known travails with subprime mortgages may be putting some pressure on funding. The quote sheet I received at their Glenville branch (220 Glenville Road) did not show all maturities, but for the terms quoted, the bank offered the highest rates in town. I also happen to like Wachovia’s service, as the staff is unfailingly polite, and the bank has rightly won awards for customer service. There is another branch, on 28 Havemeyer Place, kitty corner from the Greenwich police station. A close runner up for rate champion is the Bank of Greenwich, on 165 Mason Street. This is their only branch currently, though they are about to open a second in Cos Cob. Their level of service is also excellent. Here are some definitions: A "certificate of deposit" ("CD") is defined as a time deposit, usually 30 days to 5 years, but sometimes up to 10 years or longer, that is issued by a bank and insured within statutory limits by the Federal Deposit Insurance Corporation (FDIC), and independent federal agency backed by the full faith and credit of the US Government. These money market instruments generally are subject to a penalty for early redemption. They are sometimes quoted as a "discount to par," but they are more validly compared by "APY," or Annual Percentage yield. APY is defined as the annualized compound yield on the deposit. APY takes into account the effect of making money upon money, which is the nature of compound interest. For two identical discount yields, the APY will be higher for the one with a more frequent compounding period. An "early redemption penalty" is a deduction from proceeds of a CD deposit for premature withdrawal; these are sometimes referred to as "prepayment penalties," by analogy with consumer liabilities such as mortgages, but this is a misnomer. Special note on early redemption penalties: The early redemption penalty for

CD’s is usually computed according to changes in interest rates subsequent to purchase. If CD rates have risen, then the bank will suffer a disadvantage if you redeem early, as they will need to replace your deposit by offering a higher yield to a different depositor. This is the economic basis for charging you a penalty. The greater the time between redemption and contractual maturity, and the greater the rise in interest rates since inception of the CD, the greater the potential penalty. Such early redemption penalties can in some cases, depending on circumstances and the formula applied, be greater than interest earned. Special note on the interest rate yield curve: The graphic representation of yields running from short to long maturities is referred to as the "yield curve." In the present market, the yield curve is said to be "flat," which means that there is relatively little increase in yield for extension of maturity. A "normal yield curve" is positive, that is, upward sloping, based on the expectation that an investor should receive a premium for such extension. When short-term rates are very high, but where inflation--and thus rates--are expected to decline in the future, the yield curve may "invert," showing a negative slope at least for some portions. Decisions on the optimal term structure for your CD investments involve subtle judgments about the future course of interest rates. Ultimately, though, even expert opinion in this area is highly fallible, for the future course of interest rates is in part unknowable. One compromise solution is to construct a "ladder" of different maturities for investment. Your investment advisor will be familiar with this concept and can assist you in constructing such a ladder. Andrew Szabo CFA is managing director of Greenwich Financial Management Inc., a registered investment advisor. Questions call 917-796-8500 or e-mail [email protected]). For more information, please visit http://greenwichfinancial.com/.