I had some cash I wanted to put somewhere and get a good interest rate. I thought about getting another Series I Savings Bond since they currently pay 4.8%, but they penalize you 3 months of interest if you sell them before 5 years. Washington Mutual was advertising 1-year CD’s at 5% last week. I think they are trying to raise cash since they are one of the banks in trouble. I was able to sign up online, but they made me verify my checking account by electronically depositing two small payments (then I report back to them the amounts and they would know everything worked). ING, PayPal, and Google AdSense do the same thing, but it does take a couple of days for the deposits to show up (both less than a dollar, usually less than 20 cents each).
So I waited. Within a day or two I checked my bank account and they had deposited 72 and 94 cents. But I also noticed there was a *third* transaction taking those two deposits back ($1.66). They really are short of money.
The nice thing about it was I don’t have to make an entry in my checkbook register.
There are some federal and municipal-bond backed ETFs that seem to be good alternatives to CDs if you have a discount broker like TradeKing.
For example, with the Fed lowering interest rates in the face of inflation, you’d expect more inflation, so TIP looks particularly good, with a 5.91% yield listed at Yahoo!, even though it’s taxable (like a CD). It’s backed by Treasury Inflation Protected Securities, so it’s at least as safe as a CD when you have a broker that uses SPIC insurance (like TradeKing does).
For non-taxable income, NKG and NAD are ETFs backed by municipal bonds, but I don’t really understand why their NAV goes down, unless they have a bunch of revenue bonds and sub-AAA bonds. (TradeKing lets you buy muni bonds directly, but I believe you need to buy at least $5000 worth, since you must buy at least 5 units, and each one is around $1000.)
Thanks, Ed. I will check those out, though I don’t have much cash sitting around anymore (stocks were on sale, so I bought some stuff the last couple of days). Generally I don’t like bond funds because they change in value based on interest rate changes. I’d rather just get a fixed return without worrying about the principle fluctuating.
I was surprised that I couldn’t see a good correlation between the share price of LQD, NAV, and other bond funds when I tried to compare them to interest rate changes. Maybe I was just looking in the wrong way.
Anyway, I agree that interest rate risk is too bad. I’d buy and hold callable government obligation AAA-rated municipal bonds (but not zeroes) if I had enough money to invest. Selling before maturity or call would expose me to interest risk, but holding wouldn’t.
Right now there are such bonds with an over 5% yield to maturity. The equivalent taxable yield would be 7.46%.
Washington Mutual closed last night and was taken over by JP Morgan Chase. The WaMu website has a link to Chase reassuring customers everything will be fine. They also still have a link for the 5% online CD.