Treasure Hunting in Secondary CDs
I mentioned in a previous post Short-Term Fixed Income: CDs vs Bond Funds that I would buy CDs as short-term fixed income investment for my solo 401(k) account.
Because Fidelity administers my solo 401(k) plan, I can buy only what's available through Fidelity. I looked at new-issue brokered CDs. The yields are lower than the best rates available from other banks and credit unions.
Then I looked at secondary CDs. Secondary CDs are like "pre-owned" cars. They are being sold by bond dealers. The dealers bought the CDs from the previous owners, who for one reason or another decided not to hold the CDs to maturity.
I Bonds: Hold Or Sell?
Savings Bond Advisor reported that the next inflation adjustment on I Bonds will be 3.07%. I bought some I Bonds in April 2008 when the base rate was 1.2%. They will earn 0% starting this month through March 2010. Based on the 3.07% inflation adjustment, these I Bonds will earn 4.28% between April and September 2010.
I had planned to sell them in January 2010 after they earn nothing for three months. Now it looks like I will hold them one more year until January 2011.
If I redeem them in January 2011 instead of January 2010, these April 2008 I Bonds will earn
Chase Blueprint: Suggested Payment Calculator
By way of a post on the Payments Views blog, The Era of Responsible Credit Card Borrowing Begins Today, I heard that Chase recently launched a new Blueprint service for their credit cards.
In a nutshell, Blueprint is a fancy suggested payment calculator. For customers who carry a balance, Blueprint lets them set up some rules and helps them calculate how much they should pay based on those rules.
In an ideal world, nobody carries a balance on their credit cards and everybody always pays in full. Because we are not in an ideal world, Blueprint has its place.
Will Reward Checking Last In the Long Run?
You have probably heard of these checking accounts offered by smaller ("community") banks and credit unions. They are branded different names but they work very similarly. The concept is called reward checking. A typical reward checking account offers
- no minimum balance
- no monthly fee
- high yield up to a point (4% up to $25,000 is about average these days)
- ATM fee refund up to a point ($15-20 a month)
In exchange, it requires
It's a Two-Way Street
Bob Sullivan is the author of the book Gotcha Capitalism in which he wrote about the many ways businesses trip up the consumers with small-print fees. He also writes a very popular blog The Red Tape Chronicles hosted by MSNBC.
I like Bob Sullivan. I reviewed and recommended his book. His blog posts are usually in depth, which I like. I linked to some of them in the past. But sometimes, his consumer advocacy also becomes much ado about nothing. A recent example is his post Chase dumping former WaMu card holders.
Chase took over Washington Mutual (WaMu) last year. Customers who had bank accounts and/or credit cards with WaMu became Chase customers. Chase had a review of the accounts they took over. They decided to close some of the credit card accounts they inherited from the WaMu portfolio. What's wrong with that?
Pay Another Person Electronically for Free
A couple of friends owe me some money. How can they pay me?
Mail a check. This is the old fashioned way. We all know how it works. The stamps are not free, but pretty close. As the recipient, I have to make a trip to the bank or I put the check in a postage-paid envelope provided by Fidelity mySmart Cash account.
Online Bill Pay. They can set me up as a payee in their bank's online bill payment system. Their bank will send me a check. I deposit the check. For a one-off, it's an overkill. If it's recurring, it's easier for the sender than to remember to write and mail that check every month.
Is there a way to do it electronically? Because mailing a check and online bill pay are free to close to being free, paying electronically between friends and family also has to be free, or else it doesn't make much sense to do it.
Personal Line of Credit vs Credit Card
My personal line of credit is all set up. I tested it by making a transfer from it in the morning and transferring the money back in the afternoon. I don't think I will owe any interest that way. It worked as advertised.
A personal line of credit and a credit card are both unsecured open-end ("revolving") credit products. In a nutshell, a personal line of credit is like a credit card without a grace period or rewards, but with better cash advance features. Lines of credit are very common for businesses whereas credit cards are more common for individuals (there are also business credit cards). Based on my own personal line of credit with Wells Fargo and my three credit cards from American Express, Chase, and FIA Card Services (Bank of America), I summarize the differences in the table below. Red indicates inferior product features.
| Personal Line of Credit | Credit Card | |
| Secured | No | No |
| Document income for application | Yes | No |
| Purchase | Yes, by check or card | Yes |
| Grace Period | No | Purchase: 20 – 56 days Cash advance: No |
| Credit Limit | Lower | Higher |
| Credit limit for cash advance | 100% | 20% |
| Cash Advance Fee | None | 3%, min. $10 |
| Rewards | No | Purchase: Yes Cash advance: No |
| Annual Fee | Waived | No |
| Interest Rate | Prime + 8.5% | Purchase: Prime + 6-10% Cash Advance: Prime + 16-22% |
The Credit Crunch Finally Hit Me
In last week's post Emergency-Proof Your Emergency Fund, I said I decided to apply for an unsecured personal line of credit from Wells Fargo, where I also have a checking account.
I submitted the application online. The questions were as expected: name, address, Social Security Number, employment information, income, size of the credit line requested, and the purpose of borrowing. They said a decision typically takes two business hours. I waited all day but I didn't hear anything. I finally called and they said my application was declined! If you can believe it, they asked me if I would like to be referred to Wells Fargo Financial, their subprime unit. Me? Subprime? No, thank you.
The underwriter said the reason for the decline was that the size of the credit line I asked for was too high for my income. Fine, tell me what you can give me. No, they just flat out declined me. It's been widely reported that credit card companies are cutting people's credit limits. They have spared me so far. Ah, the credit crunch finally hit me.
Credit Scores After Canceling Oldest Credit Card
My mortgage lender sent me my credit scores. That's the only time I look at them. Otherwise I don't bother. I compared the latest scores with what I got from my last refi in February 2008.
| Credit Bureau | Model | Feb. 2008 | April 2009 | Change |
| Equifax | FACTA Beacon 5.0 | 803 | 794 | -9 |
| Experian | Fair Isaac (Ver. 2) | 780 | 796 | +16 |
| TransUnion | FICO Classic (04) | 797 | 784 | -13 |
| Average | 793 | 791 | -2 |
Two years after I canceled oldest credit card and lowered my total available credit limit by about 25%, my credit scores are still going strong. They changed very little since I looked at them a year ago.
Standardize Credit Card Contracts
I heard law Professor Adam Levitin of Georgetown University on NPR's Fresh Air program last week. Professor Levitin is one of the contributing authors on the blog Credit Slips, which I read regularly. I also linked to and quoted Professor Levitin's posts several times in the past. In his interview (listen online, download mp3), Professor Levitin talked about the recently enacted credit card law — Credit Card Accountability Responsibility and Disclosure Act of 2009 (aka Credit CARD Act, clever, huh?) — which placed limits on certain credit card practices like retroactive interest rate increases and marketing to consumers under age 21.
Professor Levitin said the legislation's approach is wrong. He said if you ban A, B, and C, they will come up with D, E, and F. He suggested instead of banning specific practices, we should standardize most part of the credit card contract. Credit card companies can still price their products however they want. They just fill in the blanks in the standard contract with their numbers. That way consumers can compare the contracts and decide which product is best for them.
I relate to my recent experience in refinancing my mortgage. Much more is at stake with a mortgage than with a credit card. Yet when I signed the long promissory note, I only focused my attention on a few places: principal, interest rate, term of the loan, interest rate fixed or variable (fixed), prepayment penalty (none), due date (1st day of every month), grace period (15 days), and late fee (5%). The rest was pretty much standard. I agree with Professor Levitin when he said credit cards are much more complex with many more prices than a straight-up loan. For people who carry a balance, it's very difficult to compare and understand all the different prices.
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