With the instability of the equity markets, the interest rates offered by two financial institutions seem quite attractive at this point in time. Heck, even better than I would venture that the stock market will offer for the rest of this year.
What has really gotten my attention the past month, is the rate of interest rate hikes over at Ford Interest Advantage. This is coming with the backdrop that the Fed is expected to lower interest rates at its meeting this month. After lingering at 5.75% - 6.05% APY for most of the summer, the APY of these accounts are now 6.14 - 6.45%. I really wish I could get a commission for hawking these accounts, but I don’t. For an investment of as little as $1000, you will earn 5.97% APR (6.14% APY) interest now. In fact, this is the highest that these investments have paid out since January 2001.
Why the sudden one month 0.38% jump in rates? I can think of two reasons.
#1: The tightening of credit markets, thanks to the home mortgage mess. This could be making it a bit harder for Ford to borrow (I doubt this is a major influence right now, but it could have an impact later on as the economic decline worsens)
#2: What I think is the more likely reason is the increased competition for investor money. Countrywide Bank (aka Countrywide Financial) is offering a phenomenal savings interest rate. Of course, Countrywide (NYSE: CFC) is also desperate for money and capital to keeps its mortgage business running. I mean its stock price has fallen below the $18 that Bank of America is paying for its 20% share. For $10,000, investors at Countrywide can get a return of 5.65% APY on a 12 month CD. For the same $10,000, it is offering 5.50% APY for its money market account. The best part is that there is no risk, even if Countrywide does for some unlikely reason declare bankruptcy. You are FDIC insured.
Thus, with Countrywide’s offer, the spread between what Ford was offering through its Interest Advantage had narrowed to a piddling 0.10%. Ford’s investment product is not FDIC insured. You are in effect loaning Ford money and investing in unsecured debt obligations (rated below investment grade by the major credit agencies) . Thus you run a small but possible risk of losing all your money in the event of a Ford bankruptcy for a small 0.10% investment premium…which is probably a no go for most investors.
That’s the beauty of a free market system. Ford in effect had to raise the amount of interest it is paying out on its accounts, and thus the premium between it and Countrywide has widened to a more acceptable 0.50%.
Plus, the best benefit of the Ford Interest Advantage program versus any type of money market account: the ability to make as many transactions you want. All money market accounts are limited by federal law to a certain number of withdrawls per month (six). On the other hand treat, the Ford account can essentially be treated as a well paying checking account. It comes with free checks, and no fees for checks written for over $250. Ford may not be the safest place for your entire life savings, but it certainly is worth looking at for a chunk of your savings.