Q. How do I go about finding the best CD rates?
---C. M., by email
A. The two major web sites that provide yield information are www.bankrate.com and www.banxquote.com. In early July, Banxquote was showing that the best yield on a one-year bank CD was 5.50 percent, while the national average was only 3.73 percent.
The difference is a big incentive to do some real comparison shopping when looking for yield investments. When you drill down to look for yields on bankrate.com, for instance, you’ll find that the Internet-based banks tend to offer the high yields, while the big brick-and-mortar banks are offering yields that can be half, or less.
In Dallas, for instance, bankrate.com showed that while E-loan was offering 5.27 percent on a one-year CD, Wells Fargo was offering only 1.64 percent, Bank of America was offering 2.86 percent, and Comerica was offering 3.20 percent. I can only speculate that Wells Fargo is trying to cultivate a depositor base of people who are rich but brain dead.
You should also compare CD yields with yields on comparable Treasury obligations and U.S. Savings Bonds. The Bloomberg website, www.bloomberg.com, shows that a 6-month Treasury bill was priced to yield 5 percent. That’s well over the national average yield on bank CDs.
You can learn about Savings Bond yields (and Treasury obligations) at www.savingsbonds.gov. Currently, EE Savings Bonds are yielding 3.40 percent. Purchase is easy, can be done in small amounts and interest is tax-deferred--- but the 3.4 percent yield won’t induce many people to move cash out of their money market mutual funds.
Fidelity Government Money Market Fund (ticker: SPAXX) recently had an effective 7-day yield of 5.08 percent, while Fidelity U.S. Government Reserves (ticker: FDLXX) was yielding 5.14 percent. Its most conservative money market fund, Fidelity U.S. Treasury Money Market Fund (ticker: FDLXX), was yielding 4.61 percent.
If you are interested in another route to tax-deferral, try http://www.annuityadvantage.com. It provides yield information on single premium-deferred annuities, including those structured like CDs.
Q. I'm a 50-year-old single, childless woman who wants to retire in 5 to 7 years. I'm pretty well set for retirement (pension, 401K, and savings) except for one small detail. I don't own a place of my own. I've lived in rented apartments all my life. My current apartment is being turned into low-income housing, so I have to move in the next 120 days. I've considered buying a place, but I live in the Seattle area, and housing that is close to work is expensive. Should I really be buying something and incurring a $250,000-plus mortgage at this time in my life? And if I don't buy now, is renting a viable long-term plan? Any advice would be appreciated.
---J.W., by email from Seattle
A. If you were intending to work another 15 years, buying a house or condo would be a better idea. For you, however, buying is problematic for several reasons. First, you may want to live elsewhere after you retire--- so you’re probably talking about making two purchases and all the associated costs. Second, you’ll be moving toward the responsibilities of ownership when many people are thinking about moving away from the responsibilities of ownership.
Finally--- and this is the biggie--- according to the National Association of Realtors, the median resale price of existing single-family homes in Seattle was $380,200 at the end of the first quarter. (Sorry, no comparable figure is available for Seattle condos.) One immediate inference is that going from renting to owning will mean a major increase in shelter costs for you. Before you buy, you should consider what you’ll have to give up in order to cover the cost of owning the house or condo.
An alternative to consider is renting until you retire. Then make a decision to rent or buy depending on home or condo prices where you want to retire versus rents.