If you still read newspapers like me, you may have come across an advertisement like this one recently touting an abnormally high 3-month or 6-month CD rate in last Sunday’s issue:
According to Bankrate, the current national average for a 6-month certificate of deposit is 0.37% APY, with their top yield being 1.25% APY. Highly-advertised Ally Bank offers less. So how can a tiny local non-bank that you’ve never heard of beat the rates of even online banks by over 2 whole percentage points?
It turns out that this is the newest version of the “free show tickets for timeshare presentations” marketing ploy. In this case, you must go into the office of an life insurance agent and listen to their sales pitch before getting the bank CD. Allan Roth over at CBS Marketwatch visited one of these offices and wrote about it. These non-bank salespeople are supplementing bank CDs from other FDIC-insured banks with their own money to reach the advertised rate. Questionable? Yes. Scam? Well, maybe not.
How It Works…
- You respond to the newspaper ad, and the terms always require you to physically come over to their office.
- After dealing with varying levels of life insurance and/or annuities salesmanship, you maintain your desire to open the account.
- You write the check for the CD directly to an FDIC-insured bank, with which the sales office is not officially affiliated with. This CD has a realistic rate, say 1% APY or similar.
- After a week or two, enough to make sure your funds cleared, the insurance people will cut you a check which together with the bank’s interest, add up to the advertised APY (assuming they are still in business).
How Much Extra Interest?
But really how much money are they losing on this? If you buy a six-month CD with an annual percentage yield (APY) of 3.35% and commit $25,000, you’ll earn approximately $418. With a APY of 1.25%, that is $156. The difference is $262. That’s basically the “bonus” that they are paying to get you into the door.
The article by Roth was initially published more than 8 months ago, so that would suggest that this marketing ploy is working and the word is spreading amongst insurance salespeople. Now, I’m sure some people will call about the CD and either not have the $25k or otherwise decided not to go for it, so that improves their bottom line. I am pretty certain that their ad targets those with large cash balances looking for income-type investments, so that they can pitch annuities with seemingly safe and high yields.
Warnings
If you still want to invest in one of these bank CDs + incentives, you should be prepared to be presented with annuities that will actually seem to yield even more that their advertised 3-month CDs. They will be carefully packaged to look like a good deal. They will be described as “insured” and “safe” because they will be backed by an insurance company. The actual yields will be computed by a formula too complex for most math PhDs to fully understand.
Next, you should check if the extra interest is really worth it due to the fact that you’ll have to deal with paper checks. If you are writing a check from a bank account that isn’t earning interest, that is some lost days of interest right there. Since you’ll be receiving the CD funds as a check as well, that’s another few business days of potential lost interest. Use my handy Ultimate Rate Chaser Calculator to see your net interest boost.
Finally, you should be sure to only write the check to an FDIC-insured institution. You should interact with them directly to ensure safe transfer of funds and proper opening of account. Double-check the CD renewal guidelines, so you are not stuck rolling the CD over for another 3 months.
Here’s a list of other companies that I found offering similar ads. Some are pretty shady in my opinion, and pretend to be an elite broker supplying high-yield bank CDs. Others are actually pretty transparent about the fact that they are offering a carrot for you to listen to their pitch. If you know of any others, please leave a comment below, and I’ll add it to the list.
- Sun Cities Financial Group (http://www.scfg.com)
- First Fidelity Tax & Insurance (http://www.firstfidelityamerica.com)
- American First Assurance (http://americanfirstassurance.com)
- Integrifirst USA (http://integrifirstusa.com)
I personally wouldn’t trust any of these guys with a $9.99 cut-n-paste GoDaddy website and a rented office with any of my personal details.
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This trick has been around for years. I remember reading a blog post about them in 2008 and I am sure I had seen them even before that. A reward checking account is a better deal.
Seems like a pretty steep bet for $25,000 minimum.
Somebody should show up with a million dollar deposit and really sting these guys.
Thank you! I actually did not know this and almost run into the deal . . .
By the way, I have been enjoying reading your blog for a while 🙂
@Andy H – I actually hadn’t seen it until now, before I mostly saw CD deals that weren’t FDIC-insured and ended up as Ponzi schemse or were some form of junk bond disguised as a CD
Examples:
https://www.mymoneyblog.com/sec-says-millennium-bank-was-indeed-a-ponzi-scheme.html
https://www.mymoneyblog.com/stupid_investme.html
@Jenna – Agreed…
@Andy – Ah, but they usually cap you at either $25k or $10k 🙂
@theTokyoGirl – Thanks!
I read an ad like this three years ago and the ad is being repeated every week ever since. I was astounded by the high rate for a CD and promptly asked my financial advisor. She tried to google the company but could not find anything on them. I think it was “Fidelity Investments” or something to that effect. We both agreed that the “company” was not trustworthy. I always wondered about them. Now I know. Thanks for the article.
@Attorney doubt she couldn’t find anything on Fidelity investments 😛 Quite a big name there
Thanks for the post, great info as always.
This sounds pretty fishy to me. I’m not sure the higher interest rate is worth the risk and the trouble you have to take to go there in person and write them checks. I’d invest elsewhere.
Josh, it was not “Fidelity Investments”, it was something similar but I can’t remember it. I recall only the high interest rate, close to 9% when everyone else was offering only 2 to 3%. The ad deliberately used a name like Fidelity to give credibility, but they had something else in their name that made it completely different from the established company. My financial advisor could not find a website for them and we completely discounted them. If it sounds too good to be true…..
was it First Financial Guarantee ?
All the comments I read here were all from people who actually did not go to their office and make an investment. Well I went to American First Assruance, I got a great CD with a great rate with a well known bank. I made my check payable to that bank and received the CD from the bank and it matured and I received the matured proceeds direrctly from the bank and I received a 1099 for tax reporting, what is the problem with all that????
I have been a CD buyer for years and purchased many CDs from Sun cities. I love their service. Buying CDs from a broker has been around for years that not to many people know about it. Keep finding higher rates, it really helps us out
Had a coworker about five years ago try out sun cities, and they paid him exactly what they advertised after the period of time. You put the money in an FDIC-insured bank like any other CD, if you can just say “no” to whatever they’re pushing, you’re good.
Does anyone do their due diligence before investing in anything? Because if they did they would be making a decision that is better informed. Yes there are a few companies that are frauduent but I have found Sun Cities Financial through the BBB as an A+ rating for 10 years had 3 complaints and all taken care by the company. Yes there are people who want to complain because they were interested in the high CD rates but were talked to about annuities and other lines of insurance products. No difference than the plate lickers who go to get a free meal but have to listen to a hour of insurance products. This is not fraud or bait and switch, but a way to talk to you about a product that you may want as well as a CD. Once you understand annuities this may be a product for you. All the people who dislike annuities are all the other investment groups, because it takes away the money they would like you to invest with them or lose with them. All I have to say is stop complaining about something you really do not understand. The other investment groups are the same people who says buy term insurance and invest the difference with them. They are talking apples and oranges. They are very convincing because they have been drilled into this otherwise they couldn’t make a sale in their own stocks, bonds, bank CD’s, etc.
First Financial Group (http://www.ffg-llc.com/FAQ.6.htm) advertised recently in my local newspaper a 6 month CD at 3.29%, or 2.14% Money Market. “*Promotional incentives included to obtain yield.”
Add First Financial Group (www.ffg-llc.com) to your list. Thanks, my mother-in-law almost got hooked. Your blog explained it for her.
At one time I was involved as a producing representative of a similar organization and I was at that time well aware of the organizations spoken of here. Much of the information discussed here is correct-but most often way out of context. For starters there is reference to an Alan Roth article-Alan Roth is not a real journalist-he is a competitor who uses his platform to denigrate his competitors. I know for a fact that he was offered one of these CD’s and refused it and then claimed later in a story that it didn’t exist. Funny thing is that he was actually on to something else and he totally missed the most important aspect of the story. He called me a couple of years after he first wrote about this (and tried to scam me)-I would not meet him for a CD appointment, but I offered to have lunch with him to fill him in on the details-and correct his perceptions-he was not interested whatsoever.
While the description of the “bonus/promotional incentive is roughly accurate-it is very far from the whole story. They are few-but some banks do actually directly appoint representatives from other financial industries and offer incentivized products that are only available through this conduit. There are also “Location” organizations that put groups of banks together who are looking to obtain business outside their normal retail areas-some of these banks you would recognize-most you would not-because they are small local banks. There is considerable supply and demand for both brokered and brokerage CD’s in a non-retail environment. Note that when banks incentivize a CD directly they cannot change the allowed current interest rate-they instead offer toasters and electric screwdrivers as incentives to new depositors. By going outside retail, to a location service, the bank can get promoted without paying for the advertising and have no expense unless a customer actually takes them up on the offer. A bonus or a promotional incentive is the only way for a consumer to obtain a short term CD or MM rate this much higher than average. In addition, the FDIC monitors and limits the amount of promotional incentive products a bank can offer. The only mystery comes from the fact that none of this is available through retail channels-for most consumers their investigative prowess ends right there. When retail CD buyers show up at a brokers office they most often object to the additional dialogue-but it is required-by regulatory law. Consumers often refuse to acknowledge the difference and/or hide behind their own ignorance. Some can be educated-not many in my experience
OBTW bankrate.com is simply an advertising site-the interest rates there are the regular interest rates offered by the banks who pay to appear there-the rates may be real-but they are not necessarily the best rates available.
Most of the organizations discussed here-at least at one time-offered promo products from all of these sources and to my knowledge all pay what they advertise. OBTW (2) Annuities pay more interest. Everytime-everykind-everyday and they are also insured by a government guaranteed insurance fund-one that does not have its reserves robbed by congress like the FDIC-they are on paper and in actuality safer than any bank CD. Check it out sometime-educate yourself.
OBTW (3) If your financial adviser does not offer it-they will certainly denigrate it-guaranteed-duh.
I AM NOT SURE WHAT IS MORE INAPPROPRIATE, THIS
BAIT AND SWITCH” SCAM, OR THE BLOG RESPONDING! I AM A “REAL, LEGITIMATE, FINANCIAL ADVISOR”, THAT FINDS THIS TYPE OF MARKETING, OUTRAGEOUS, AND UNETHICAL. ACTUALLY, IF YOU ARE PROPERLY LICENSED, AND CREDENTIALED, AS I AM, FOR 32 YEARS, YOU COULDN’T DO THIS, EVEN IF YOU WANTED TO. THOSE OF US WHO ARE TRUE PROFESSIONALS ARE PROHIBITED FROM THIS TYPE OF BAIT AND SWITCH TACTIC. BUT TO IMPLY, THAT “ALL”, ADVISORS THAT SELL ANNUITIES AND LIFE INSURANCE, ARE LIKE THESE CROOKS, IS AS DISINGENUOUS AS THE FOOLS PERPETRATING IT. I WOULD CHALLENGE YOUR EXPERTISE, CREDENTIALS, AND EXPERIENCE AGAINST MINE ANYTIME, ANYWHERE! YOU SHOULD BE ASHAMED OF YOURSELF!
Woah, easy on the caps lock there buddy.
I’m not exactly sure who or what you are responding to, but nowhere did I imply that “any” or “all” advisors that sell annuities or insurance are crooks. I don’t believe that at all, but I do know I’d never go to a financial advisor that can’t control his or her temper.
I’ve seen this bait and switch newspaper ad in Amarillo for years with SteveTheIRAguy.com aka Steve Hoyl. Just be ready to be sold something else.