I went ahead today and bought some more of the 12-month CD at 5% APY from Washington Mutual/Chase. Here’s why:

Reason #1: Chase agreed to honor WaMu CD rates
From the official FDIC WaMu takeover page:

6. Will I continue to earn interest at the same rate?
JPMorgan Chase accepted Washington Mutual’s interest bearing accounts including CD’s at the contract rate; therefore, they are not waiving early withdrawal penalties.

Even though there was speculation that Chase would only pay interest up to the failure date as was the minimum requirement, Chase went as far as to not even allow early withdrawals without penalty. They have committed to honoring these rates, which also worked out great for those that jumped on it last month.

Reason #2: They are still offering the 5% APY 12-month CD
A week later, the same high rate is still on their website:

This can’t have been an accident. 13-month CD is available too.

Reason #3: It’s FDIC-insured, now with a more stable bank
For those that worried about WaMu service interruption or lost liquidity (which never happened) , now it should be even more stable with Chase Bank.

Reason #4: It’s still a top rate, and it might change at any time.
Maybe there is some sort of behind-the-scenes rate freeze agreement that we don’t know about. Their popular Online Savings + Free Checking combo is still paying 4.00% APY on savings and the checking perks haven’t changed (WaMu review). Savings accounts at any bank are always subject to change, so there is nothing I can do about that. But I can sure lock in this rate now and keep my system going as long as possible:

Reason #5: Fed may drop interest rates soon
Bailout plan or not, this economy ain’t doing so well. Although I don’t make big bets on such forecasts, there is a good possibility that Fed will lower interest rates by the end of the year (see USA Today, WSJ).

If your funding source is not WaMu, they let you fund electronically with another bank’s routing and account number. You have to remember to verify the test deposits, though.

Washington Mutual has raised the rate on their Online Savings + Free Checking combo to 4.0% APY. This is now the highest of the no-minimum no-fee savings accounts. Curiously, HSBC Direct actually dropped their rate to 3.25% APY earlier this week.

You can learn more about this account at my WaMu review post. They also again have 12-month CDs yielding 5% APY.

I’ve already laid out why I am sticking with Washington Mutual. In short, why would I mess with this nice setup as long as my money is still insured?

[Some pages still say 3.75%, but my account details confirm the 4.0% APY. Existing account holders can log in and click on “About this account”. Or just click here and hit Apply Today, and you should see the new rate.]

WaMu has rolled out a new 5% APY 12-month CD, which is a very high yield for that term length. Yes, WaMu has had some issues like other banks, but I’ve already explained why I am sticking with them as long as I’m under the FDIC insurance limits.

Convenience Factor
If you already bank at WaMu, you can fund it easily online with a minimum of $1,000. With their existing Free Checking and 3.75% APY Online Savings combo, it makes a convenient package:

Early withdrawal penalty is 90 days interest. You can fund directly from your existing accounts. I might move some money around for this one.

Combine with 0% APR Balance Transfers
For those that are interested in making some profit using 0% balance transfers, but have been holding off due to the narrowing interest rate spreads, this might be an opportunity to jump back in. Here is a list of no fee 0% APR balance transfer credit cards.

Borrowing the money at 0% and putting it in 5% CD for 12 months gives the following rough math: Gain of 5% interest on $12,000 = $600. Minus $75 fee and taxes to get your final profit. You can do better if you get a larger credit limit. If you can handle the minimum payments of 2% of balance per month ($200 initially each $10,000) with your regular cashflow, then you could stick the entire amount in the CD. The actual terms say that the introductory period lasts “until the last day of the billing period ending during September 2009”.

It seems that one small silver lining of these ongoing bank troubles is that well, banks need more money in order to keep afloat. This means they are more willing to pay us more $$$ for the privilege of holding onto ours. 🙂 Even the big banks are starting to play along. Thanks to Brian and John for their respective updates.

Big Banks
If you have a decent balance and are willing to lock up your month for a while, below are some nice rates with terms of a year or less. Interest rates might be going back up soon to combat inflation, so locking in a CD longer than that might not be the best idea.

• Bank of America has a 7-month CD paying 4.11% APY. $5,000 minimum.
• Washington Mutual has a 8-month CD paying 4.25% APY. $1,000 minimum. They still offer their no-minimum liquid savings account at 3.30% APY.
• Wachovia has a 12-month CD paying 4.25% APY, as well as a 7-month CD paying 4% APY. $5,000 minimum.

Online Banks
The online bank arena remains the place to be if you want high yields and minimal restrictions, including the ability to withdraw money at any time. All are still FDIC insured.

• HSBC Direct is offering 3.50% APY with no fees and no minimum balance requirements, guaranteed until 9/15.
• FNBO Direct is offering 0.85% APY with no fees and no minimum balance requirements, and has maintained a decent track record of consistently high rates.
• Everbank also has a savings account that offers a nice 4.65% APY for the first 3 months, and then 3.51% APY afterwards. Not bad, considering even the non-special rate is very competitive. I guess that is why they call it the Yield Pledge Money Market account, since it “pledges” to stay amongst the top 5% of competitive banks. There is a minimum balance requirement of $1,500 to avoid fees.