Let's Play "Name That Yield"

Zionsdirect.com's online CD auctions routinely net bidders top returns

Like many retirees, John Urban shops for the best rates on the CDs and money-market accounts that make up a large chunk of his portfolio. The 65-year-old Bristol (R.I.) resident scours the Internet looking for banks offering the highest yields, but lately he often finds the best deals at an online auction run by Zions Direct, a division of Salt Lake City-based Zions First National Bank (ZION ).

At Zionsdirect.com, the company generally runs five auctions a week of $1,000 CDs, typically with 1- to 18-month maturities. Since debuting on Feb. 27, it has conducted 59 auctions, approximately 60% of which have netted participants rates above the highest available at the time on Bankrate.com, which tracks rates nationwide, according to Bankrate's own analysis. Urban, who purchased CDs in six auctions so far, says he checks advertised rates at local banks and on Bankrate.com and then submits a bid for a slightly higher yield. "You win some and you lose some, but the rates I've gotten I wasn't able to find elsewhere."


Here's how the auctions work: Zions sets a competitive interest rate, or "coupon" rate, on the CDs. The simplest way to bid is to name the yield you would like to receive. You can also bid the price you would pay for a $1,000 CD with that coupon.

Look at Zions' May 22 auction of $1 million worth of two-month CDs with a 5.05% coupon. The auction attracted 25 bids. Zions filled the $1 million allotment by accepting those offering to pay the highest prices. In this case, there were 17 winning bids ranging from $999.26 to $1,000 per CD. The bank awards the lowest winning price—and thus highest yield—to all the successful bidders. So the winners paid $999.26 for a $1,000 CD with a 5.05% coupon. That discount might seem small, but it's the equivalent of 0.45% on an annualized basis. That, plus the 5.05% coupon, produced an annualized yield of 5.50%. In contrast, on the same day, the highest yield available on a two-month CD at Bankrate.com was 5.0%. (Zions plans to introduce similar auctions for municipal bonds this summer.)

To bid, you have to register with the site. Winners also must open an account at Zions Direct, although there are no fees, and you're free to transfer the CDs to other institutions. For each auction, the bidding remains open for a week, and winners are listed on the auction Web site (by their bidder IDs) and are also notified by e-mail within 10 minutes of an auction's close. The downside? Once you bid, you can't back out.

By Anne Tergesen

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