Personal Business: Smart Money
HOW TO PICK UP SEXIER CDs
Most people looking for certificates of deposit automatically think of going to a bank or a savings institution. But some securities brokers can often get you more favorable rates.
Large brokerage houses such as Smith Barney, Dean Witter, Merrill Lynch, and Oppenheimer cut their own deals with banks nationwide to get better yields than those offered to individuals. "Brokered CDs tend to be significantly higher than the national averages," says Norbert Mehl, president of BanxQuotes Money Markets in Milburn, N.J., which tracks CD rates. Just compare the 5.9% average for one-year bank CDs with the 6.68% for one-year brokered CDs. If that's too long to tie up your funds, try three months at 5.82% vs. 4.2% for banks. Like bank CDs, brokered CDs are backed by the Federal Deposit Insurance Corp. for up to $100,000.
PAPERWORK. Where's the catch? There really is none. You don't pay any fees because the banks pay the broker commissions. The banks offer the higher yields because the brokers buy in huge quantities and take over the administration of the CDs. "We do all the paperwork, so we're saving them the cost of that overhead," says Clint Gilbert, director of the retail-CD funding desk at Smith Barney. You can keep tabs on the top-yielding offerings by calling BanxQuote (800 666-2000) or looking up its results Wednesdays in The Wall Street Journal.
Brokered CDs got a bad name during the 1980s, when ailing thrifts were offering particularly high rates. When some of the CD issuers failed, customers forfeited the juicy returns, even though deposit insurance protected their principal. Now, the FDIC only allows registered brokers to buy CDs from the most highly capitalized banks.
Brokerages promote high-rate CDs to keep their risk-averse customers happy and to lure new clients in the hopes of selling them more lucrative products. "I wouldn't say the consumer can't do any better on his or her own," says Gail Liberman, editor of The Bank Rate Monitor. Indeed, some individual banks offer even better yields. Imperial Thrift in Glendale, Calif. (800 927-2442), and Midwest Savings in Columbus, Ohio (800 686-2052), best the brokers with six-month CDs at 6.6% and 6.5%, and one-year CDs at 7.11% and 7%, respectively.
But it may be inconvenient to deal with a faraway bank. And some of the top bank rates aren't available to out-of-state consumers. So you might want to forgo the absolute highest rates for the ease of calling a broker.By Pam Black