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”.
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I do not have an account with them, but went on applied using my Capital One checking account.It looks like they will send a few small deposits to verify my account. Would I still need to sign up for online checking?
Between my 6% checking account at United Heritage and this, I might see some money this year!
Wow, that’s a good deal on a CD and even better than the performance of some mutual funds.
I really hope WAMU doesn’t go under as their online banking has really been improved and is very easy to open accounts instantly. They also have many branches where I live so it’s good if I need to deposit or withdraw from it.
jen – I don’t think you need a checking account with them to get the CD. I am not sure how it would be handled upon maturity though, in that case.
Thanks Jonathon.
Next question…if WAMU goes under what happens to our CDs? A friend of mine who just quit working there said there was rumor that they would merge or be bought out.
Do they do a hard pull even for a CD? Would it be wise to open a checking and savings while applying for the CD just in case they have future deals on CDs to avoid further credit hits?
jen: Certificates of Deposit are FDIC insured up to $100,000/individual, just like (most) checking and savings accounts. So if WAMU goes under, the US government’s got your back.
I’ve never been clear on exactly how you use the balance transfer feature of a credit card to fund a CD? Could someone give a little advice? I missed out the last couple years of easy credit card deals, but this looks like it might be good enough to get me interested!
Also, I currently have ~6 credit cards (amazon, citi-cash back, etc etc) but I only ever use one. I’ve been utilizing the instant credit line increase feature of citibank on the cards that I don’t use over the last year or two, so between all the cards I don’t use, I’ve got some pretty high credit limits. Is there anyway I can leverage that when applying for new credit (for instance with one of the cards listed in this post) to get a higher credit limit than I would normally be automatically approved for? (can you “trade in” one credit card for an increased credit line on another?)
thanks!
That’s a good interest rate. Thanks for the tip. I might take advantage of it. I’m a little worried about them going under, since the FDIC is facing paying out more money than they have to pay out, but I’m 99.9% the FDIC will get bailed out by the government in some way.
Kuzbad – say you apply for a Discover Card that has one of these 0% APR Balance Transfer offers. You apply for the card, and indicate that you want a $10k balance transferred to your Visa card, which you already own. Provided they approve you for that amount, you’ll have a *negative* $10k balance on your Visa card – instead of owing Visa, Visa now owes you.
There’s usually an option for you to have a Credit Refund issued to you in this case, which often comes in the form of a mailed check, but some CC companies will allow you to transfer the Refund electronically. This would be more secure, I’d think, and probably faster so you lose less interest. Once you’ve got the Refund transferred to the checking account of your choice, use that money to fund your new high-yield CD.
In the meantime, you’ve got an outstanding balance on your Discover Card with no interest, but still obligatory minimum monthly payments. If you invest in a CD, you’ll need the cash-flow on hand to fund these payments. If you put the money into a high-yield savings account instead, you can either pay off the CC using your own funds or siphon off of the ‘borrowed’ balance until it’s time to pay it off in full.
Cory – Ahh, I see! Thanks for the very clear explanation I never realized that’s how it works!
“If you can handle the minimum payments of 2% of balance per month” I’m having trouble locating this in the literature. Can somebody point it out to me?
Kuzbad & Cory – Whenever I’ve done the 0% BT, I’ve found ways to deposit that straight into my bank without having to go through a 2nd credit card company.
One way is to just get a check from the credit card company and deposit it into your bank.
Another way would be to request via the website that they deposit it into your bank. Some credit card websites have that option.
If you need to call and request a check for BT, just tell them it’s because you have multiple cards you want to pay off, and this is the easiest way.
Wamu’s website is down…
lets say wamu goes under…will the government repay whatever interest has incurred on your cd? or just the original amount?
never mind you answered that question in your previous posting.
Just opened mine, remember if you open one to not put your FDIC insurance limit in initially – leave some room in the account for the interest to accrue without going over the limit.
The whole 0% APR money transfers seems like risky business. I’m going to look into it further before I take the plunge.
Jonathan, your profit calc seems a little sloppy. Do you not have to repay the 0% loan in regular payments over the term? You should subtract that payment out because you’re not earning interest on money you have to pay back.
Sounds great…hope WAMU will let me apply CD online. They declined my application for savings because the fraud alert on my credit report, and could not process it unless I go to a branch which my state does not have.
Kuzbad,
for a more detailed explanation of the process, Jonathan has written a nice piece on the 0% Credit Card arbitrage here:
https://www.mymoneyblog.com/how-to-make-money-from-0-apr-balance-transfers
Little doubt that WaMu will go under in the next year or so.
FDIC has your back regardless of their balance sheet. Congress will have to step in and cover any deficiencies. Stay under the limit and you are safe. The only real question is that once WaMu is taken over…what happens and how fast. There are several scenarios. FDIC can run WaMu as a receivership like they are doing IndyMac or another bank can take over the operations immediately like Ebank/ING last year. The timing thing is the only thing to really worry about. If receivership occurs, then how fast can people get their money. If they place a hold on things, will interest still be acrueing?
like all CD rates. The fine print always says that the rate is subject to change at any time.
So once you are locked into the CD and rate drops..what can you do?
While I would probably never advocate pulling cash from a credit card to put it into a CD (even at 0%) it is hard to ignore a “deal” like that – especially with how rates are going today.
Obviously WaMu is trying to bring in a lot of cash during these difficult times for them. They need it in order to stay afloat. I wouldn’t worry about that though and it seems you’re not because of the FDIC insurance. I definitely would not place uninsured funds with them at this point in the game though.
how slow is FDIC to pay a claim?
if WaMu goes out in 10 months and you file with FDIC, will you have your cash back within a month so you can pay off your debt, or will you get socked with fees and trying to explain to the credit card company that the government has their money???
Thanks! I opened one up!
ChrisMr — If your funds get locked if/when WaMu crashes and you can’t pay your balance/payment, the credit card company will not have sympathy. You’ll be paying 28.99% interest on your balance. Good luck.
Jonathan,
What do you think of Suze advising this ? Buy low sell high, sounds like market timing, isn’t it ?
http://finance.yahoo.com/expert/article/moneymatters/102882?count=30&start=6#dtk-cmtscnt
ChrisMr, if im not wrong, u wont even know the difference IF Wamu bellies up and FDIC takes over. U just walk in there and withdraw ur money like WAMU did exist.
I have been offered by my local credit union that they are open to MATCHING any CD rate offered by other institutions…just an idea folks! If you like your bank, there may be no reason to open an account with another one…
I believe that the FDIC will guarantee interest accrued up until the date of bank failure. After that, it is up to the bank taking over the funds to either keep or change the rate as they wish, or let you withdraw with no penalty. I wouldn’t mind earning 5% until then, if that happens.
As long as you are under the FDIC limits, there should be no “claims” process to wait for. That’s for the over $100k that they have to liquidate assets to see what’s left over. In the case of recently failed banks, within 2 business days you could go in and withdraw your money. (see referenced link in post) With online access these days, I’d just use the ACH routing numbers and suck my money out electronically.
Jigar – I think you misunderstand. The whole point of a certificate of deposit is to lock in a fixed rate for a certain length of time. The rate advertised (before buying) can change at any time.
I had a question about these 0% balance transfers — if you had a credit limit of say, 10000, what is the effect of drawing all of that in balance transfer on your credit score? What percentage of the credit limit can you request in balance transfer without adversely affecting your credit score? Less than 50%? Less than 80%?
Thanks.
Pam
I just switched my 6-mos to a 12-mos CD for almost double the rate. Thanks for the tip Jonathan!
I checked with E*trade and my local bank – neither was willing to match this rate.
Are you paying taxes on all that money jonathan
This is a very low risk transaction, I got some tonight.
Don’t forget to deduct interest lost on minimum payments and minimum finance charge from $600 gain.
WaMu’s mm account is now 4.00% (min $25,000.00)….
I went for it, though it might mean WaMu’s on the verge of
going under.
It looks like this rate is gone – it’s now 4.5%. Very surprised that it only lasted for a week!
Will the 75 dollars that discover charges you go under a high interest rate for the 12 months??? If so you have to subtract that from your profit too…
Hi folks, the 5% 12-month CD is back on the market. Just opened one today! Hurry up before this great offer goes away.
Thanks for the tip Jonathan. Setting it up was painless.
Good question from Brian,
“Will the 75 dollars that discover charges you go under a high interest rate for the 12 months??? If so you have to subtract that from your profit too…
”
Anybody know for sure ?
Fees are usually treated as purchases, and will be charged interest according to the Purchase APR. Most times, the interest will be so small (10% annual interest on $75 is only $7.50) that you will only be subject to the minimum finance charge of 50 cents to $1 each month.
My dad recently died and my mom put some of the life insurance money, undfortunately in washington mutual. It was under the insured limit. Will she get paid back?
Are there any fees w/ this CD?