Money Markets Offer Checks

First, let’s look at how these products work. A money market account is basically a savings account, but pays more than many regular savings or checking accounts. Right now the average yield on money market accounts is 1.3%, nothing to write home about but you do get a small return on your money.

Money markets usually allow you to write a limited number of checks, and money market rates can fluctuate. MMA rates are typically not locked down.

CD Rates Vary Based on Term

Certificates of deposit tie up your money for specific periods of time for the privilege of earning interest. CDs can have a maturity of a few weeks to several years. The longer your money is in a CD, the higher the rate of interest you can get. Right now, the average 2-year CD rate is 1.96%.

If you want your money to stay safe, CDs offer FDIC insurance up to $250,000 per individual. But you won’t have access to your money during the term of the CD and have to pay a penalty for early withdrawal.

Also required for this rate is opening of a BofA personal checking account. Minimum balance to open this money market savings account is $10,000. The rate for balances that fall below $10,000 is 1.00% as of 8/21/09.

This special doesn’t seem to be listed at Bank of America’s website. There was an advertisement in the Dallas Morning News – available online here. I don’t know if this promo is available in all states. If you confirm it’s available in your state, please leave a comment.

BofA does describe the new Growth Money Market Savings Account on its website. The standard rates are low: 0.75% APY for balances up to $100K and 0.85% for over $100K.

There’s a bonus rate that’s 25 basis points higher (rates for TX as of 8/21/09 and may vary by state). This requires one of the following transactions during the month: 1) automatic transfer of $250 or more from your BofA checking account, 2) an automatic transfer of monthly interest payment from your Bank of America CD, or 3) a direct deposit of $250 ore more.

As you might expect with BofA, there are monthly fees. These can be avoided with a minimum balance of $5,000, or if you link the account to an Advantage with Tiered Interest Checking.

The account allows up to a total of 3 checks or purchases made with your debit card each monthly cycle. You can also use this account with the Keep the Change program.

Bank money market rates in general have been steady through the the turmoil in the financial markets in the last few weeks. Financial experts are expecting the rates on bank money market account to continue to compare favorably to mutual fund money market rates which are subject to the lower yields on short-term US Treasuries.

The Relationship First Savings Page has the details of this account. The standard rates are low. There’s a $9 monthly fee if you have less than $5,000 in combined balances. The account does have limited check writing.

It appears a branch visit is required to open new accounts. Branches are located mostly in Tennessee, but there are also branches in Georgia, Virginia, Arkansas and Mississippi.

There have been many articles and blog posts focusing on who might be next. This New York Times article and this CNN article review the financials of a few troubled banks.

After IndyMac was seized – the seventh bank to fail since the credit crisis began last summer, and the second-largest bank to fail in the Federal Deposit Insurance Corp.’s 75-year history – stocks in nearly all the nation’s banks were clobbered Monday as the market bet that there will be more failures. This is a tough time to be investing in banks.

There was infinitesimal movement in auto loan rates for this week. The 48-month new-car loan rate scooted up 1 basis point to 7 percent. The 36-month new-car loan rate also ticked up 1 basis point to put it at 6.94 percent while the 60-month new-car loan rate held tight to 7.03 percent.

Used car loan rates also held fast to last week’s positions. The 36-month used-car loan rate is 7.74 percent and the 48-month used-car loan rate is 7.75 percent.

On Tuesday, the Consumer Federation of America advised drivers curtailing their motoring habits as a result of expensive gas to check with their insurance companies — it could be a chance to save some money. If you’re driving much less than before by consolidating trips or only going to the train or bus station, you could save as much as 10 percent on car insurance.

Fixed-rate mortgages soared this week and are now at their highest level in nearly 10 months.

The average 30-year fixed-rate mortgage jumped 26 basis points, to 6.52 percent. A basis point is one-hundredth of a percentage point.

The average 15-year fixed — a popular option for refinancing — shot up even higher, rising 28 basis points, to 6.12 percent. The average jumbo 30-year fixed was up 13 basis points, to 7.6 percent.

The one-year adjustable-rate mortgage was up just 2 basis points, to 6.16 percent. However, the popular 5/1 ARM jumped 27 basis points, to 6.07 percent.

Mortgage applications rose sharply after three straight weeks of decline, according to the Mortgage Bankers Association. For the week ending June 6, applications rose a seasonally adjusted 10.9 percent when compared to one week earlier.

Refinancing grew by 8.4 percent while applications for new purchases increased 12.8 percent.

If your deposits are under the FDIC limits, you don’t have worry about losing any money. However, there is a risk that the receiver of the failed bank decides not to continue the CD term. The new bank is free to close the CD early. The early withdrawal penalty would be waived. This is what happened when NetBank closed last year. Some CD holders had their NetBank CDs closed early by ING Direct. On the positive side, you are also free to close the CD early without an early withdrawal penalty.

Common wisdom says bonds are a safe haven from stock market turmoil. Does that mean you should buy bonds if that turmoil comes from recession or inflation?

Complicating the situation is the fact that there is no one-size-fits-all-situations bond. The Treasury Department issues bonds, so do corporations, municipalities and banks. There are short-term bonds and long-term bonds; bonds with pristine credit ratings and junk bonds.

Remember, while bonds may protect you in hard economic times from the deep dives that stocks sometimes take, there is no guarantee you won’t lose money. With bonds, you can get hurt while standing on the sidelines.

Stability versus volatility
It’s a given that most people, especially as they near retirement and need to reduce volatility in their portfolio, should have a smattering of bonds for stability and to provide fixed-income.

The ratio of bonds to equities and cash depends on your needs and your risk tolerance. We won’t specifically address allocation in this article, but we will try to provide some guidance for when it’s appropriate to load up a bit more on your bond allocation.

Cash, U.S. bonds and foreign bonds
David Marotta, president of Marotta Asset Management in Charlottesville, Va., includes three asset classes in the stability portion of his clients’ portfolios.

The first is “short money,” comprised mainly of money markets and, occasionally, short-term CDs; assets that mature in less than two years. Second is U.S. bonds, and the third is foreign bonds.

“Short money has probably been the riskiest investment over the past couple of years,” says Marotta. “The dollar has dropped in value and its buying power has dropped tremendously. By proxy, the second riskiest investment is U.S. bonds. They’ve appreciated some in the recent market downturn, they’ve paid a little bit better interest rate, but in terms of purchasing power, they’ve been one of the worst investments in the last two years.

“Foreign bonds do the best during a recession and during inflation. During a recession, the bond category as a whole will do well, but during inflationary times, the U.S. dollar is dropping in value. Your foreign bonds are going to get both the good return you get in a bond portfolio during a recession and an extra kick because the value of the U.S. dollar is dropping.

“When the dollar drops, your foreign bonds are going up in value because they’re invested in foreign currencies, which aren’t being devalued as much as the dollar. When you invest in foreign bonds in this mode, you want to invest in unhedged foreign bonds.”