Find Higher Yields
The drive to beat inflation can lead to some unexpected destinations.
By Joan Goldwasser, Senior Reporter
From Kiplinger's Personal Finance magazine, October 2003
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With money-market rates at an all-time low, savers are on the lookout for better deals. The average money-market fund pays just one-half of one percent these days, and a one-year certificate of deposit pays a miserly 1.05%. This is at a time when inflation is running at 2.3%. But if you're willing to take a bit of risk, you can whip inflation now. Ford, GMAC, GE Capital and Caterpillar are all offering savings accounts that pay as much as 2.8%.
These relatively high-yield parking places are not bank products. Therefore, they don't carry federal insurance. The companies pay more than banks or money funds because they use the money for higher-return investments, such as loans and leases on automobiles and farm vehicles. GE Interest Plus's accounts currently yield from 1.75% to 2.25%, depending on the amount invested. GMAC Demand Notes pay 2.75%, and Caterpillar's Cat Money Market Account returns between 2% and 2.5%. Ford Motor Credit Co.'s Ford Money Market is the winner with a 2.8% yield for those who invest at least $50,000. The rates on all the accounts can adjust weekly.
These accounts are similar to money-market mutual funds and require an initial investment of as little as $250 for the GE Interest Plus (if you agree to add automatically to your account) and the Cat Money Market Account. Ford and GMAC require a minimum of $1,000 to open an account. All the accounts allow unlimited check writing, with $250 minimums.
There is a slight risk associated with these accounts because savers would have to stand in line with other creditors if the company defaulted on its bonds. But that is an extremely unlikely scenario: All four corporations have investment-grade credit ratings and none has ever defaulted. According to Timothy Hayes, a fee-only financial planner in Pittsford, N.Y., "the risks are pretty minimal."
If you're interested, visit the offering companies' Web sites: www.caterpillar.com, www.fordfinancial.com, www.gefn.com and www.gmacfs.com.