C2 505 MONDAY, NOVEMBER 24, 2008 BUSINESS BAY AREA NEWS GROUP
CD deposit and a 4 percent inter-
est rate. Capital One Direct
Banking offers a one-year CD
several years. Early withdraw-
als of principal are typically
subject to penalties in the
and credit of the U.S. govern-
Why is that an issue?
Also, when the CD is
bought from a brokerage,
early withdrawal penalties
motional CDs to attract new
investors while not increas-
FROM PAGE 1
ing the interest rates on CDs
with a 4 percent interest rate form of reduced interest pay- Investors with a CD at may not apply. That’s because held by existing customers,
for deposits of $5,000 and ments. a FDIC-insured bank (or a brokerage can resell a CD
of $250,000 or less is covered above. Generally, CDs have better at a credit union, which on the secondary market, he said.
by deposit insurance provided WaMu Bank — which rates the longer they are held also provides insurance up which has price ﬂuctuations “They do that knowing
by the Federal Deposit Insur- recently became part of JP since the money will be tied to $250,000 per depositor linked to current interest that the vast majority don’t
ance Corp. Morgan Chase Bank — has up longer. However, at this through the National Credit rates. If interest rates have either have the time or don’t
In late October, the Federal an online one-year CD that time there isn’t that much dif- Union Administration) that increased since the CD was know where to shop around,”
Reserve slashed a key inter- pays 2.75 percent interest on ference in interest rates paid goes under would get their purchased, it’s likely the Montague said. “If consum-
est rate by half a percentage a $1,000 minimum deposit. on shorter-term and longer- money returned, but the pro- owner would receive less ers are aggressively looking
point to 1 percent, a low that But a one-year CD at a WaMu term CDs, McBride said. cess would likely be inconve- than the original principal.
was last seen in 2003-2004. for a (better) rate, they will
brick-and-mortar branch One place where there is a nient, Gardner said. Conversely, if interest rates
But in contrast to ﬁve years has an interest rate of 1.25 difference is the average in- The $250,000 insurance dropped, the owner would probably be able to ﬁnd one,
ago, interest rates paid on percent. terest rate paid on CD versus ceiling, which went into effect likely receive more than the maybe without leaving their
CDs were much lower than Some brick-and-mortar Treasury bills. in October, expires on Dec. principal amount. In either institution.”
they are today, making CDs banks and credit unions offer CDs with maturity dates 31, 2009, under action taken case, any interest earned until Some promotional CD
a better investment now than competitive interest rates ranging from one to three by the FDIC. After that date, the CD was sold would be products have to be funded
they were then. for CD products that can be years are currently paying the coverage cap goes back retained. with new money, which
In November 2003, the opened at a local branch or higher interest rates than to the earlier $100,000 limit. Because there is such a
means the funds cannot be
national average paid by online. Wachovia has a one- Treasuries with comparable Retirement accounts held in wide range of CDs available,
banks and credit unions for year CD that pays 4 percent maturity dates, said Gary CDs were already insured up consumers need to do lot of taken from an existing ac-
a one-year, $25,000 CD was interest based on minimum Gardner, a certiﬁed ﬁnancial to $250,000, so they will not research before buying a CD, count within the same bank.
1.27 percent, according to $1,000 deposit. planner and president of Wal- be impacted by the expiration said Ray Montague, deposit Nonetheless, if a CD is
Informa Research Services And Patelco Credit Union nut Creek-based LifeWealth date. product research manager for earning a so-so interest rate
Inc., a ﬁnancial research and offers one of the highest rates Advisors Inc. Besides banks and credit Informa Research. and the bank comes out with
database ﬁrm. Last week, in the nation for a one-year For example, a two-year unions, people can also buy Looking for promotional a promotional CD with a
the national average for a CD. However, the 7 percent Treasury note maturing CDs from brokerages such CDs can be beneﬁcial.Too
higher interest rate, investors
one-year, $25,000 CD was 2.5 interest rate is paid only a on Oct. 31, 2010 has a 1.5 as Fidelity Investments and often, investors will get a CD,
percent, or almost twice as $1,000 deposit, no less and no percent interest rate, or a full Charles Schwab. then keep rolling it over, with- should ask if they could get
much. more, and is available to new percentage point lower than CDs offered by broker- out trying to get a better rate, the higher rate on their exist-
Since that number is an members only. the current national average ages are obtained from banks, Montague said. ing CDs when they are rolled
average, there are plenty of CDs require investors who of 2.5 percent for a $25,000 which means they are also “What people really need over.
CD products that pay much purchase them to leave the one-year CD. covered by FDIC insurance. to do is look for the specials,” “You could try. It doesn’t
more. Pure online banks that money alone for a set period “CDs are preferable Since brokerages can buy he said. hurt to ask,” Montague said.
don’t have brick-and-mortar to derive the interest rate because the interest rate is CDs in large quantities, it’s Such promotional CDs Eve Mitchell covers per-
branches are likely to have offered. Interest earnings are higher,” Gardner said. possible that a bank-issued typically have higher inter-
some of the best rates even taxed as ordinary income. Still, he pointed out that CD sold by a brokerage could est rates over short terms, sonal ﬁnance and real estate.
though it’s not always the There are several maturity while a CD is covered by have a better interest rate such as eight or nine months. Reach her at 925-952-2690
case. ING Direct offers a one- dates for holding CDs, rang- deposit insurance, Treasuries than could be obtained from Financial institutions will or emitchell@bayareanews-
year CD with no minimum ing from a few months to are backed by the full faith a bank. sometimes come out with pro- group.com.
FROM PAGE 1
day. But the price will not be
established until the open-
ing bell the next day. So the
after-hours trader doesn’t im-
myself. But a broker tells me
that in order to buy stock
from him I need to open a
Feds shut down two SoCal thrifts
brokerage account. Is it pos- By Marcy Gordon The Treasury Department Reich, director of the Ofﬁce of
mediately know the buy price agency recently boosted the Thrift Supervision, in a state-
— K. W., Richmond or the sale price. Prices can sible to ﬁnd a broker who ASSOCIATED PRESS
will simply buy stocks and WASHINGTON — Federal minimum capital requirements ment. This year, four of the ﬁve
change overnight because the
A: As I understand the
rules, you must roll
over into a traditional IRA.
world of ﬁnance never sleeps,
as we discovered in the take-
let me keep the certiﬁcates?
— L.W., Union City
regulators on Friday shut down
two big thrifts based in Southern
California, saying they fell victim
for the parent, Downey Finan-
cial Corp., as the company
struggled with the slumping
failures of institutions regulated
by the agency — and all the ones
of signiﬁcant size — had major
over of Merrill Lynch by Bank
Then you may convert into You have to trade to the acute distress in the hous- mortgage market. Downey concentrations in housing ﬁ-
a Roth, which imposes more of America on a Sunday night. ing market in that state. was hit hard by rising mort- nance business in California, he
The after-hours trader will not through a broker. You
favorable rules. However, The failures of Downey gage defaults, especially in its said.
can elect to hold the certiﬁ-
there are tax consequences of get immediate conﬁrmation, cates on your own, but you
Savings and Loan Association, option adjustable-rate mort- In July, another big savings
unlike trading during regular based in Newport Beach, and gage holdings. Option ARMs and loan, IndyMac Bank based
converting from a traditional
hours. If you think a stock has could lose them and when you PFF Bank & Trust of Pomona allow customers to choose a in Pasadena, Calif., failed and
to a Roth IRA, consequences
great long-term potential, it want to sell them you have to brought the number of U.S. different payment option each was seized by regulators with
which will be less stringent
doesn’t matter when you buy deliver them to your broker. bank failures this year to 22. month — including a payment about $32 billion in assets.
in 2010, unless Congress
it. Sellers have to be more Also, your certiﬁcates would The Federal Deposit Insur- that is smaller than the inter- The FDIC estimated that
changes the rules again.
cautious. ance Corp. was appointed re- est due on the loan. the resolution of Downey will
be covered by the Deposi-
Q: If an IPO means “initial
public offering,” then
why can’t the general public
Q: You mentioned in your
column that electric
tory Trust Co., which charges ceiver of the two thrifts. U.S.
a fee that you would have
Bank, based in Minneapolis, ac-
Option ARMs have been
among the worst-performing
cost the federal deposit insur-
ance fund about $1.4 billion,
utility stocks are counter-cy- quired all the deposits of both. loans during the downturn in while that of PFF will cost an
easily buy one? My broker to pay. On top of that, you Downey, the 23rd-largest the real estate market. estimated $700 million.
clical. If that’s the case, why lose the broker’s insurance.
tells me that only high-end U.S. savings and loan, had PFF, established in 1892, Regular deposit accounts
have my shares in Exelon
investors have access to It’s best to have your broker assets of $12.8 billion and had a large concentration of are now insured up to $250,000
fallen 40 percent in value
IPOs. I have $2,000 to invest. hold the certiﬁcates, which deposits of $9.7 billion as of housing construction loans as part of the ﬁnancial rescue
since their June high?
— S.G., Fremont is called holding them in Sept. 30. PFF, the 38th-larg- hit hard by the deteriorating law enacted in early October.
— R.K., Oakland
est, had assets of $3.7 billion real estate market on the West The 22 bank failures so far
A: Yes, an IPO is sold by
a restricted number of
brokers and those brokers
A: All stocks, cyclical and
counter-cyclical, can fall
“street name.” Brokers don’t
lose certiﬁcates. This is the
and $2.4 billion in deposits.
Also Friday, Georgia regu-
Coast, the thrift agency said.
“The closing of these two
this year compare with three
for all of 2007 and are far
in price when the market de- paperless electronic age and lators shut down The Com- thrifts once again demonstrates more than in the previous ﬁve
sell only to customers with stock certiﬁcates are slowly
clines broadly. But, over time, munity Bank, a small bank in the tremendous impact of the years combined. It’s expected
the largest, most active ac- vanishing.
counter-cyclical stocks have a Loganville, Ga. The FDIC was housing market distress on the that many more banks won’t
counts. That’s probably just
better chance of quick recov- made receiver of the bank, state of California,” said John survive the next year.
as well, because an IPO is Cliff Pletschet’s Personal which had $681 million in as-
ery. Compare, for example,
a highly-speculative invest- Finance column appears Sun- sets and $611.4 million in de-
a utility with an automaker.
ROUSE TIRE SERVICE, INC.
ment. Buyers have to be wary posits as of Oct. 17. The FDIC
Consumers can get by without day and Monday. Send gen-
of “ﬂippers,” game-playing said all the bank’s deposits
buying a car, but they will al- eral-interest questions to him
investors who buy the stock at
the outset and sell it when the
ways need electricity. Exelon,
the holding company of Chi-
at P.O. Box 28147, Oakland, and about $84.4 million of
its assets will be acquired by
FALL TIRE SALE AUTHORIZED DEALER
price inevitably rises, causing CA 94604 or e-mail him at
$10 TO $15 OFF PER ®
cago-based Commonwealth Bank of Essex, of Tappahan- TIRE
its price to plunge. Anyway, I email@example.com. nock, Va. Its four branches
Edison, was hit with higher In-Store Dealer Promo
don’t think you will get much Give your name, city and the will reopen Monday as ofﬁces Family Owned Since 1946
costs, and defaults on electric
with $2,000. question in brief form. To sub- of Bank of Essex. Michelin® Pilot® Sport PS2™ Michelin® LTX™ M/S
bill payment. However, the Sought after by the world’s best. Tires you can depend on in
Q: What’s the deal with company, at this writing, is scribe to his quarterly newslet- The Ofﬁce of Thrift Supervi- nearly any weather condition.
after-hours stock trad- proceeding with an unsolic- ter, Investment Educator, send sion, the federal regulator for the
two California thrifts, said they 245/40ZR 17 P225/70R 16
ing? ited bid to buy NRG Energy $20, made out to Personal 225/45ZR 17 P265/70R 16
— J.H., by e-mail for $6.2 billion. both suffered mounting losses
Investment Education, to the
since last year. Downey’s busi-
After-hours trading I have owned stocks above address. Also, visit our ness focused on nontraditional, More Sizes & Types in Stock
allows investors to buy for many years and I Web site, www.investment- high-risk home mortgages such LOCATED NEAR LAKE MERRITT MONDAY THRU FRIDAY 8:30 AM – 5:00 PM
and sell stock 24 hours a like to hold the certiﬁcates educator.com. as payment-option and adjust- 2 DOORS DOWN FROM 7-ELEVEN
able-rate loans. 2340 HARRISON/OAKLAND (510) 834-9938
Butler hoisted on its own petard. Its
problems start with a calciﬁed
culture that resists change.
Years ago, my neighbor
worked on an assembly line
in Fremont. I know the work
FROM PAGE 1 Its factory workers make is extremely difﬁcult. I’m
an average of $70 per hour sympathetic, but at this point
change compared to the cost including beneﬁts — or about the auto industry is asking
of Chrysler’s under-funded $140,000 per year. Similar
taxpayers to pay for salaries
pension plan at the time. By workers at U.S.-located for-
granting the automaker some eign car factories make $20 and health insurance beneﬁts
time and money, the govern- less per hour. Bankruptcy, — taxpayers who make far
ment had at least a chance Sorkin argues, would clear less, on average, and who in
of avoiding what, at the time, the decks and allow the indus- many cases don’t have health
was a sure $6 billion under- try to rid itself of gold-plated insurance themselves. Mean-
funded pension cost. We all obligations at every level that while, if you own a General
lucked out. Chrysler even have now made it impossible Motors vehicle, you’ll be
repaid the loan a few years to compete. receiving a letter soon asking
early, and has lasted long My only question would be you to write your congress-
enough to create yet another those pesky retirement plan man in support of the bailout.
unfunded liability. obligations. We the taxpayers This is an industry that has
Today, Pat Buchanan would be stuck at the time of been trying unsuccessfully to
points out that the auto in- bankruptcy with obligations
go bankrupt for twenty years.
dustry, directly or indirectly, that would dwarf the mere
employs over three million $25 billion to $50 billion the They may succeed this time
people. If we let it go down industry is pleading for. Bank- around in spite of anything
the drain, we lose a strategic ruptcy doesn’t make pension we do. But it will cost us, no
asset that would be impos-
sible to recover. He suggests
obligations go away. It does
allow a dramatic reduction
Congratulations, Fremont Marriott Silicon Valley!
Steve Butler is president of
You’re Super Heroes
we make the loan and then in the beneﬁt amount, as any
establish the same import United Airlines pilot can tell Pleasant Hill-based Pension
quotas that we used to save us, but the bulk of the obliga- Dynamics Corp. and author of
Harley Davidson. tion will wind up in our laps. the book “401(k) Today.” You
Andrew Ross Sorkin points It may be the right business can e-mail him at mr401k@ The StopWaste Partnership honors you with our 2008
out that the industry has been decision in any case. pensiondynamics.com.
Business Efﬁciency Award for cutting costs, recycling &
preventing waste, and protecting the environment.
Make your An invincible team:
Want to join the ranks of heroic businesses? With the StopWaste
Food & Wine Partnership by your side, you too can become a “green” leader!
877-STOPWASTE (786-7927) firstname.lastname@example.org