Lessons My Banker
Never Taught Me
New Horizon Financial
320 Palisade Avenue
Bogota, NJ 07603
Tel. 201.489.1118
Fax. 201.457.1082
Topics for Discussion
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Certificate of Deposit (CD’s)
Historical CD Rates
Bank Fees
The Role of the Federal Reserve
Reserve Requirements and Lending
Inflation
Taxation
Options
CD’s
• What is a CD?
– A certificate of deposit is a savings certificate that
entitles the owner to receive interest.
– CD’s bear a maturity date, have a specified fixed
interest rate and can be issued in any
denomination.
– Durations range from one month to several years.
– Issued by most commercial banks.
Historical Rates (CD’s from 1984-2010)
Footnote 1
Current CD Rates
Duration
Bank
Rate
6 Month
Allied Bank
.1%
1 Year
Discover Bank
.35%
2 Year
Ally Bank
.5
3 Year
GE Money Bank
1.2%
5 Year
Discover Bank
1.9%
7 Year
Denver Savings Bank
2.45%
10 Year Bond
1.9%
30 Year Bond
3.1%
CD - Time Deposits - Bank of America
Term
Less than
$10,000 $25,000 $50,000 $100,000 $500,000 and
$10,000
$24,999
$49,999
$99,999
$499,999
over
†
†
†
†
†
Rate/APY(%) Rate/APY(%) Rate/APY(%) Rate/APY(%) Rate/APY(%) Rate/APY(%)†
28 - 89 Days
0.27/0.27
0.27/0.27
0.27/0.27
0.27/0.27
0.27/0.27
0.27/0.27
90 - 179 Days
0.28/0.28
0.28/0.28
0.28/0.28
0.28/0.28
0.28/0.28
0.28/0.28
06 - 11 Months
0.30/0.30
0.30/0.30
0.30/0.30
0.30/0.30
0.30/0.30
0.30/0.30
12 - 17 Months
0.35/0.35
0.35/0.35
0.35/0.35
0.35/0.35
0.35/0.35
0.35/0.35
18 - 23 Months
0.35/0.35
0.35/0.35
0.35/0.35
0.35/0.35
0.35/0.35
0.35/0.35
24 - 35 Months
0.40/0.40
0.40/0.40
0.40/0.40
0.40/0.40
0.40/0.40
0.40/0.40
36 - 47 Months
0.60/0.60
0.60/0.60
0.60/0.60
0.60/0.60
0.60/0.60
0.60/0.60
48 - 59 Months
0.85/0.85
0.85/0.85
0.85/0.85
0.85/0.85
0.85/0.85
0.85/0.85
60 - 119
Months
120 Months
1.10/1.11
1.10/1.11
1.10/1.11
1.10/1.11
1.10/1.11
1.10/1.11
2.28/2.30
2.28/2.30
2.28/2.30
2.28/2.30
2.28/2.30
2.28/2.30
Minimum to Open: $15,000 Terms of 7 Days - 27 Days/$1,000 Terms of 28 Days - 10 Years.
Footnote 2
Bank Fees
Investment Vehicle
Minimum To Invest
Rate %
Regular Savings Account
No Minimum
.05
Money Market Savings
No Minimum
.13
Growth Money Market
Savings
No Minimum
.13
7 Month Term CD
$10,000
.40
7 Month Term IRA
$2,000
.40
9 Month Term CD
$5,000
.30
9 Month Term IRA
$2,000
.30
12 Month Term CD
$10,000
.45
12 Month Term IRA
$2,000
.45
18 Month Term CD
$10,000
.65
18 Month Term IRA
$2,000
.65
What is the Federal Reserve
• What is the Fed?
– The Federal Reserve is a formal organization
created to study and implement monetary policy
Federal Reserve
“Although the federal funds rate is likely to
remain exceptionally low for an extended
period, as the expansion matures, the Federal
Reserve will at some point need to begin to
tighten money conditions to prevent the
development of inflationary pressures.”
– Ben S. Bernenke
Footnote 3
Reserve Requirements and Lending
• Reserve requirements are the amount of
funds that a depository institution must hold
in reserve against specified deposit liabilities.
• Reserves must be held in the form of vault
cash or deposits with Federal Reserve Banks.
Reserve Requirements
Deposit Liabilities
Requirement
$0 to $11.5 million
0%
More than $11.5 million to $71.0 million
3%
More than $71.0 million
10%
Lending
Type of Loan
Rate
New Auto Loan Average (New York, NY)
5.8%
Used Auto Loan Average (New York, NY)
6.09%
Subsidized Undergrad Stafford Loan
3.4%
Subsidized Graduate Stafford or
Unsubsidized Loans
6.8%
Parents and Direct PLUS Loans
7.9%
Average Credit Card APR
14.9%
Unsecured Credit Card
Footnote 4
Lending
Subsidized student loan interest used to be 6.8%.
But when Democrats took over the House in
2007, they passed phased-in cheaper rates for
subsidized student loans. The rates fell to a
current low of 3.4% for subsidized Stafford
student loans this past school year. The rates
are scheduled to revert back to 6.8% for the
2012-2013 school year.
Footnote 5
Lending
At a time when Americans owe more on student
loans than on credit cards — student debt is
topping $1 trillion for the first time — and the
Occupy movement has highlighted the rising
furor over spiraling student debt…
Footnote 6
Inflation
• Inflation is the rate at which the general prices
of goods and services rise.
• As it increases your purchasing power
decreases.
• Example: If inflation is 2% a pack of gum that
costs $1 will cost $1.02 in one year.
Inflation
• The inflation rate in the U.S. was reported at
2.7% in March 2012
Year
Inflation Rate
Year
Inflation Rate
2011
3.16%
2001
2.83%
2010
1.64%
2000
3.38%
2009
-0.34%
1999
2.19%
2008
3.85%
1998
1.55%
2007
2.85%
1997
2.34%
2006
3.24%
1996
2.93%
2005
3.39%
1995
2.81%
2004
2.68%
1994
2.61%
2003
2.27%
1993
2.96%
2002
1.59%
1992
3.03%
Taxation
• Money markets and CD’s are taxable.
• Between taxation, inflation and bank fees you may be
losing “buying power” keeping your money in a bank.
• You may consider the use of alternative means to stay
ahead of inflation and reduce your tax burden
• Certain investments can be tax free.
2012 IRS Tax Brackets
Tax Bracket
Single
Married Filing Jointly
Head of Household
10%
$0 - $8,700
$0 - $17,400
$0 - $12,400
15%
$8,701 - $35,350
$17,401 - $70,700
$12,401 - $47,350
25%
$35,351 - $85,650
$70701 - $142,700
$47,351 - $122,300
28%
$85,651 - $178,650
$142,701 - $217,450
$122,301 - $198,050
33%
$178,651 - $388,350
$217,451 - $388,350
$198,051 - $388,350
35%
$388,350+
$388,350+
$388,350+
Options
• Mattress
• Ask questions of your banker
• Read a quarterly filing to see banks profits
• Talk to an investment adviser about
municipal bonds
Footnotes
1- http://www.bankrate.com/system/util/print.aspx?p=finance/cd-rates-history-jan-2011.aspx
2- www.bankofamerica.com
3-"Bernanke Reaffirms 'Extended Period' of Low Rates", nytimes.com, February 24, 2010
4-http://www.hsh.com/autosample.html, http://ehow.com/info_810511_average-rates-studentloans.html, http://www.lowcards.com/ccu.aspx
5-"Obama pushes to keep low student loan rates",
http://money.cnn.com/2012/04/20/pf/college/student_loans/index.htm, April 20, 2012
6-” Student Loan Interest Rates Loom as Political Battle”
http://www.nytimes.com/2012/04/20/education/student-loan-interest-rates-loom-aspolitical-battle.html?_r=1
Disclosure
Securities offered through Cadaret, Grant & Co., Inc., member FINRA/SIPC.
One Lincoln Center, Syracuse, NY 13202. Telephone number: 315.471.2191
Performance figures displayed herein represent past performance and are
not predictive of future results. The investment return and principal value
of an investment will fluctuate so that an investor’s shares/units, when
redeemed, may be worth more or less than the original cost. Investment
securities are not FDIC-insured, nor are they deposits of, or guaranteed by,
a bank or any other entity.
The information has been gathered from sources believed to be reliable,
however, Cadaret, Grant does not guarantee the accuracy or
completeness of the information. The cost basis of securities positions is
being provided by the account holder and neither the representative not
Cadaret, Grant makes any representations as to the accuracy of such cost
basis. The cost basis information provided is meant as a general guide and
should not be relied upon as tax or legal advice.