Archives for September 2008

The pending bailout is not just about saving Wall Street, it is also about saving the economy from spiraling down into a deep recession. The problems on Wall Street have already started dragging Main Street down with it. There is so much fear in the market right now, banks are not lending to anybody - individuals, companies and each other.

The rate banks charge each other for loans (the LIBOR - the London Interbank Offered Rate) has shot up overnight. For example, the 3 month LIBOR is at 4.05%, up from 3.88% and the rate banks charge each other for overnight loans is at 6.88%.

The Federal Reserve has been doing its part to ease the crunch by pumping money into the markets to provide liquidity but banks just aren’t lending because they are scared to lend.

All types of lenders had already been raising the bar for borrowers and were only lending to the best customers. With the uncertainty of the bailout they became even less willing to lend their money, further crimping the crunch.

Banks are even cutting back on credit cards and lowering the credit limit on borrowers, further squeezing borrowers. American Express has lowered the credit limit on about half its credit card holders. Amex is also offering fewer credit cards in areas where housing prices have fallen the most, which includes California, the southwest and Florida.

How does this affect you?

Need a mortgage or home equity line of credit? 

• Lenders are raising the bar for qualifying for a mortgage, most banks are once again requiring a 20% down payment.
• Loan Debt To Income has been lowered, your monthly loan payment should be no more than a certain percentage of your income, meaning you now qualify for less then you would have in the past. You can use this GinnieMae Affordability calculator to see how much you qualify for.
• Banks are also requiring higher credit scores to qualify for a home loan.
• Home equity lines of credit have been canceled or reduced as home prices have fallen.

Worried about being laid off?

Many companies fund their day to day operations and grow using short term credit. They accomplish this by selling short-term and long-term bonds in the credit markets. Right now, the short-term debt markets are at a standstill and the long-term debt markets are a bit more functional, but rates are high.

Companies with high levels of debt will be the first ones in trouble, but even companies with low levels of debt might have to resort to layoffs if they can’t get access to credit and the economy stalls.

What can you do to survive the pending credit crunch?

Start a budget and fund an emergency fund (if you don’t already have one).

1. Take inventory of your financial situation by making a list of all your income and expenses to know where you stand.
2. Expenses: There are basically two types of expenses - fixed cost and variable cost.  For example, your mortgage payment is the same every month but the amount you spend on food varies.  Shop fixed costs where it’s possible (like car insurance) and find ways you can cut back on variable costs.  Look for areas where discretionary spending can be curbed without causing too much discomfort or distress.
3. Subtract your expenses from your income. This is your budget starting point. Think about a dollar amount you would like to have in an emergency fund and save every month towards your goal. Experts recommend 3 to 6 months of expenses to tide you over in the event of a job loss.  
4. Try trimming your expenses, eat out less, shop around for cheaper car insurance. If you take the time to keep track of a budget you will be surprised how much you can cut back and still feel like you are living. Before you make a purchase, ask yourself, “Is this a need or a want?” When you clearly define needs and wants, making purchases is easier and you won’t feel guilty making certain purchases.
5. If you are staying within your budget, treat yourself from time to time, the pain of staying within a budget will be easier.

Another way to survive this uncertain economic period is to make sure your bank deposits are within the FDIC insurance limits.

The Certificate of Deposit Account Registry Service (cdars.com) allows you to deposit up to $50 million in Certificate of Deposit accounts. You earn the same CD rate across all banks your money is deposited in.  

Here is a MarketWatch.com video on spending less and saving more.

Updated 10/3/08:

Wachovia said Friday it agreed to be acquired by San Francisco-based Wells Fargo & Co. in a $15.1 billion all-stock deal that trumps Citigroup’s plan to acquire Wachovia’s banking operations and avoids government assistance.

Citigroup  will acquire the banking operations of Wachovia. All depositors are fully protected and there is expected to be no cost to the Deposit Insurance Fund.

“For Wachovia customers, today’s action will ensure seamless continuity of service from their bank and full protection for all of their deposits.” said FDIC Chairman Sheila C. Bair. “There will be no interruption in services and bank customers should expect business as usual.”

The special promotional 7 month CD rate of 4.00% APY is still active on Wachovia’s website. Take advantage of one of the best CD rates, CitiBank might withdraw the offer soon because the rate on a 9 month CD offered at citibank.com only has a 3.25% APY.

AmTrust Direct is offering one of the best CD Rates for a 6 month CD at a rate of 4.35% APY. The minimum deposit is $1,000. Interest is compounded daily and the CD account is insured to the maximum allowed by the FDIC.

You can receive interest payments on a monthly or semi-annual basis on accounts over $5,000. Interest disbursements can be posted to an AmTrust Bank checking or savings account or mailed to you by check. There is a $5.00 fee to receive interest disbursements by check.

AmTrust Direct’s penalty for an early withdrawal is 6 months of interest. That means that you would lose all of the interest you would have earned, so be sure you can afford to lock your funds up for 6 months before signing up for this CD Rate. 

AmTrust Direct has been around for over 100 years and was founded in Cleveland, Ohio in 1889 as Ohio Savings. The bank changed its name to AmTrust Bank in 2007 to better reflect its national presence.

AmTrust Direct 6 Month CD Application

AmTrust Direct has one of the best online savings accounts offers - their e-Savings Account currently has a 4.00% APY. The minimum deposit is $500. The 4.00% APY is for balances up to $99,999.99 and balances $100,000 and over receive a rate of 2.50% APY.

This promotional rate is only available for new money (money not already deposited at AmTrust) and the account limit is 1 per customer. Initial deposits can be made by check or electronic transfer and you can link up to 6 external accounts to your e-Savings Account.

AmTrust Direct e-Savings Account Application

Wachovia Bank is offering one of the best CD rates for a 7 month CD, the promotional yield is currently 4.00% APY. The minimum deposit is $5,000. Interest is compounded daily and the CD is insured to the maximum allowed by the FDIC.

The interest you earn on the CD account can be withdrawn at anytime or you can choose monthly or quarterly withdrawals.

There are steep penalties for early withdrawals of principal before your CD matures, which is based on the CD term and the amount withdrawn.

• Up to and including 90 days, all interest earned
• 91 through 364 days, 90 days’ interest
• 365 days and greater, 180 days’ interest

An account can be opened online in 8 minutes, by calling 1-800-WACHOVIA or at your local Wachovia branch.

Wachovia Bank 7 month CD Online Application

The office of Thrift Supervision has shut down Washington Mutual Bank and named the FDIC as the receiver. JPMorgan Chase Bank has acquired all the banking assets of WaMu.

What does this mean for WaMu’s customers? According to the FDIC the transition will be seamless, there will be no interruption in service. JPMorgan Chase Bank is honoring all deposits.

The following Q&A session will help you decide whether or not to continue banking with JPMorgan Chase Bank.

Are my deposits transferred from Wamu to JPMorgan Chase still FDIC insured if I already have an account with JPMorgan Chase?

All deposits that are transferred from WaMu to JPMorgan Chase will be separately insured for six months after the sale of Washington Mutual Bank. So if your combined deposits are over the FDIC insured limit you have 6 months to withdraw funds to stay within the limit.

Will JPMorgan Chase Bank honor WaMu’s 5.00% APY 1 year CD rate?

Yes, JPMorgan Chase Bank is honoring all deposits, including WaMu’s promo 5.00% APY 1 year CD.

At this time JPMorgan Chase Bank is still offering the promo 5.00% APY 1 year CD, which is one of the best CD rates available.

JPMorgan Chase Bank 5.0% APY 1 year CD Rate Application

Will checks that I have written on my WaMu checking account clear?

All checks drawn before WaMu closed will be honored as long as there are sufficient funds in the account.

Can I withdrawal funds without incurring an early withdrawal penalty?

Yes, you can withdraw funds from any account transferred to JPMorgan Chase before you enter into a new deposit agreement with JPMorgan Chase.

Will I receive interest accrued on my accounts from JPMorgan Chase?

Yes, all interest accrued through 9/25/08 will be paid at the same rate. 

What about future interest rates?

JPMorgan Chase is reviewing rates and will provide further information shortly.

Do I continue paying any loans I have with WaMu?

Yes,  you need to continue to honor any loans you had with WaMu with JPMorgan Chase since you are contractually required to do so. According to the FDIC website, “The terms of your contract will not change because they are contractually agreed to in your promissory note.” 

Where should I send my loan payments?

You should send checks to the same address until further notice from JPMorgan Chase Bank.

E Trade Bank will give you $25 for opening a “Complete Savings Account”. The minimum opening deposit is $1.00 and you only have to deposit a dollar to get the $25.00. The $25 will be deposited to your account within 30 days of you funding your account.

The current annual percentage yield on the account is 3.30%. The account is FDIC insured up to $100,000.

The savings account can be opened online in 10 minutes or by calling 1-800-ETRADE-1, mention offer code 9301. You will need the following information to open the account.

• Residential Street Address
• Date of Birth
• Social Security number
• Driver’s License, State-Issued ID or Military ID

E Trade Complete Savings Account application

Washington Mutual Bank (WaMu) has raised the rate it pays on it’s Online Savings Account to 4.0% APY from 3.75% APY. The rate change is affective immediately. The rate is very competitive with 1 year CD rates. You must also have a  WaMu Free Checking account linked to the savings account to receive this rate. WaMu Savings Accounts without a relationship checking account receive a paltry rate of .25% APY.

The checking and savings account can be opened online. No direct deposit is required for the checking account and checks can be ordered online. There is a minimum deposit of $1.00 for each account.

WaMu Checking & Savings Account Application 

ING Direct is offering $25 for opening an Orange Savings Account. You can open the special promo account online here ING Orange Savings Account. There is no minimum balance requirements for opening the account. The savings account currently has an annual percentage yield of 3.00%. Be sure to use reference code D286W when you open the account.

We have been searching for the elusive 5.00% APY for a 1 year CD from a national bank, Washington Mutual’s offer is over and it appears none of the major national banks are offering 5.00%  APY for a 1 year certificate of deposit. 

Most banks are now offering a 1 year CD Rate between 3.50% to 4.50%. Bankrate.com list the national overnight average of 3.67%.  Here is a list of five national banks offering 1 year CD rates higher than the national average. 

Special 6 month CD Rate from a local bank.

Dime Savings Bank of Williamsburgh Brooklyn (New York) is offering one of the best cd rates, a very special promotional deal on a 6 month CD, the 6 month CD rate is currently 5.00% APY, that’s right, 5.00% APY for a 6 month CD! The minimum opening deposit is $500. The bank has been around for over 100 years in the New York area.

To qualify for this high cd rate you have to open a Prime Dime Checking account, use direct deposit or pay one bill online each month. You have 90 days to meet both conditions, if you fail to meet the conditions the rate you receive on the 6 month CD will be 3.00%.  After 90 days if you meet one of the conditions the CD rate will be raised to 5.00%.

Dime Savings Bank 6 Month promotional CD Application

Citibank is offering $100 when you open a CitiBank Checking Account.  You have to be an existing CitiCard credit card holder and the offer isn’t available for existing CitiBank checking account customers. To qualify for the $100 you have to also do the following:

1. Open and fund your new checking account with $1,000 or more by 10/31/08
2. Make a direct deposit to or make at least 2 electronic bill payments from your new account each month for three consecutive months.

The $100 will be deposited into your account within 120 days after you meet the requirements.  Be sure to use offer code CYBA when signing up for the checking account.

Citibank $100 checking account offer

That depends on which money market fund you have invested in. There are big differences between a money market mutual fund and a money market deposit account at a bank. Some banks sell both types of investments.

Money market mutual funds invest in what was thought to be highly liquid safe securities. Safe, that is, until this past week. Money market mutual funds make investments in asset backed commercial paper, certificates of deposits and government securities. One money market mutual fund, The Primary Fund, froze redemptions for seven days because the fund “broke the buck”, which means each share in the fund is worth less then $1.00, in this case each share is now worth 97 cents.  The Primary Fund got into trouble because of its exposure to Lehman Brothers (Lehman filed for bankruptcy this week), the fund invested in Lehman debt.

Money market deposit accounts are FDIC insured up to $100,000 per account, $200,000 for joint accounts and up to $250,000 for some retirement accounts.

Be sure to check with your financial institution to see which type of money market account you have money invested in.

Update: 9/19/08 Treasury Department to guarantee Money market mutual funds

The Treasury said it will tap into a Depression-era fund to provide guarantees for the money market mutual funds. The Treasury also said it would use its $50 billion from the Exchange Stabilization Fund to provide the guarantees for the money market mutual funds. The fund was created in 1934 to provide support for the dollar.

E-Loan is currently offering one of the best cd rates for a 6 month Certificate of Deposit (CD) Rate of 4.02% APY. The minimum opening deposit is $10,000. As with all E-Loan accounts you are actually opening an account with Banco Popular North America, the parent company of E-loan.

The CD Account is FDIC insured up to $100,000. The early withdrawal penalty is 3 months of simple interest.

E-Loan 6 month CD Application

Community Bank of Pleasant Hill is offering their Rewards Checking Account which pays a rate of 6.10% APY on balances up to $25,000. Balances over $25,000 receive a rate of 1.25% APY. There are several qualifications that need to be meet monthly to qualify for this great checking rate. If you do not meet the qualifications for the month the rate you earn is only .30% APY.

Monthly qualifcations to receive the rewards checking rate:

• Minimum of 10 check card purchases (ATM usage does not count toward the 10 purchases)
• 1 ACH automatic payment or ACH direct deposit transfer
• Receive your monthly account statement electronically

The checking account has the following benefits:

• Free Checking
• No Minimum Balance
• Free Debit Card
• Free Online Banking
• Free Online Bill Pay

You will need the following to sign up for the account:

• Driver’s license or State ID
• Previous home address (if you have lived at your home address less than 2 years)
• U.S. Social Security number
• U.S. checking or savings account to fund the account. This account requires an initial deposit at least $100. After your account is opened, you will be able to transfer additional funds into it.
• You must be a U.S. citizen or a U.S. resident alien
• You must be a U.S. resident
• You must be at least 18 years of age

Community Bank of Pleasant Hill is located in Pleasant Hill MO. The Rewards Checking Account can be opened online.

Community Bank of Pleasant Hill Rewards Checking Account Application

IndyMac Federal Bank is offering a special online money market account rate of 3.75% APY. The minimum opening balance for their E-Money Market account is $1,000. To receive the 3.75% rate you need a minimum balance of $50,000. Balances between $1,000 and $9,999 receive a rate of 3.10% APY, balances between $10,000 and $24,999 receive a rate of 3.30% and balances between $25,000 and $49,999 receive a rate of 3.65%.

• These rates are only available online.
• There is a $7.00 monthly fee if the balance falls below $1,000.
• This account does not have check writing or a visa check card.
• You can access your funds from an ATM.
• Interest is compounded daily and paid or reinvested into the account monthly.

IndyMac Federal Bank Money Market Account application

IndyMac Federal Bank is offering one of the best cd rates around, an online promotional 7 month Certificate of Deposit ( CD ) Rate of 4.15% APY. The minimum deposit is $5,000. Interest is compounded daily and paid or reinvested into the account monthly or at maturity. This promo CD rate isn’t available to Institutional or Business accounts.

The early withdrawal penalty on the 7 month CD is 3 months of interest. There is a 7 day grace period beginning the day after the CD matures to withdrawal or transfer your funds to another account. The CD will renew with the same term at the current available CD rate.

IndyMac Bank failed on July 11th and went into receivership and became IndyMac Federal Bank. Deposits are FDIC insured up to $100,000. 

IndyMac Federal Bank 7 month promo CD application