As Long As You Asked….
With a stroke of luck, those five words became very profitable over the years.
Shortly after I married Jo, her father passed away and I became responsible for managing her mother’s (who I affectionately called Grandma) money. Grandpa was a very successful farmer and they had done well.
The bulk of Grandma’s wealth was in Certificates of Deposit (CDs) at banks all over town. She understood the FDIC limits and carefully spread her money around various banks. When a CD would mature, the bank would send her a note, automatically rolling it into a new CD at the going rate.
One local bank had been gobbled up by Bank of America. When I got the renewal notice, the rate seemed low. I hopped in the car, drove over to the local branch and was greeted by a young lady. I showed her the letter and said, “the rate seems awfully low.” She smiled and said, “A long as you asked, I can authorize another ½%.”
She started to fill out the paperwork and I said, “Wait a minute!” You have been screwing retirees all over town, why aren’t you giving them the best rates to start with. Either you give her an additional ½% over the life of the CD that just matured, or give her a check, we are moving it to another bank. I was furious.
She was shocked, and reluctantly cut Grandma a check as we closed the account. I took the sizeable check – and had to figure out what to do with it.
My stock broker, Mary Lou, was my age and I trusted her. We had already opened an account for Grandma with the intention of consolidating some of her money there. I drove to her office, with check in hand, and told her the story and asked her, “what’s really going on?”
As long as I asked, my education was about to begin.
Mary Lou explained, while banks competed for investment capital, in retirement states like Florida, there were so many retirees that the banks offered rates much lower than the rest of the country. She pulled up a site on her computer screen I’d never seen before.
Her firm offered FDIC insured CDs from banks all over the country. The rates were much higher than the local CD rates. We could invest grandma’s money, get the best CD rates available, have the income deposited directly into her brokerage account, and when it matures, go shopping nationally again for the best rates. We deposited her check, bought a CD in another state and the process began.
As each local CD matured, I would drive to the bank and ask for a better rate, which they always agreed to; not nearly as good as we could get through the brokerage firms, but generally ½% higher than their original offer.
It was maddening; why should you have to ask? All the friendly local banks were screwing their loyal customers, by not providing competitive rates. The majority of their CDs came from retirees who were investing their life savings and need the interest income to help pay the bills.
That all changed in 2008 when the Fed bailed out the banks, flooded the system with money, and banks no longer had to compete for working capital. They got all the capital they needed from the fed, at negative interest rates, when adjusting for inflation. CDs no longer made any sense, guaranteed losers, with rates well below inflation.
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Some things never change
Our 13-year-old grandson Brock is spending a month with us this summer. When he was born, his parents opened a savings account for him. He’s watched it grow for over a decade.
Brock said he was “tired of receiving a few pennies in interest” and asked his dad how he could earn more money. He added some of his money he saved at home to his savings account balance and bought a CD. Now he earns more than $200 a year in interest. He said he felt ripped off by the bank with the low interest in the savings account they had paid him. He gets it….
The next step in the learning process
We have branches of Bank of America, Wells Fargo and a local bank nearby. I went to each bank and asked for their current CD rates. Some additional lessons quickly emerged.
The Bank of America’s posted hours were 10-4, Monday through Friday. I asked the slick-dressed young man for a sheet showing the current CD rates. He suggested I sit down at his cubicle and he would print them out. I chose to stand, and he gave me a sheet showing the current foreign exchange rates; not what I asked for.
The manager walked up, I explained what I wanted, and the clerk went back to the computer and printed it out. While that was taking place, I had to listen to the pitch about making an appointment with their Merrill Lynch retirement expert, which I declined.
Next stop; Wells Fargo. Their posted hours, 9-5, Monday through Friday. I asked the clerk for a CD rate sheet and she explained they don’t give them out, explaining rates change daily. She wrote down a website where I could find the information.
Right next door is my local bank. Hours 9-6, Monday through Friday and 9-1 on Saturday. The smiling clerk recognized me, asked me about my weekend and we discussed where we watched the fireworks at our community park. She handed me the rate sheet, thanked me, and off we went.
I explained to Brock how Bank of America and Wells Fargo had been fined billions by the government for ripping off their retail clients over the years. He picked up on their hours, noting that the local bank seemed much more interested in serving their retail customers.
Interest rates comparison
The Wells Fargo website was difficult to understand, and gave no CD rates beyond 1 year. As best I could determine, the rate was 1.5% and jumped to 2% if you were over $100,000. Bank of America offered 13-month CDs with a yield of 4.5%, while the local bank offered 4.55%.
The rate sheets were confusing, and I was unable to compare anything beyond one year.
I opened up the Schwab website and showed Brock their current offerings. While the rates constantly change, this is what was currently available.
Brock quickly remarked his local bank rates were almost 2% lower than what was available from Schwab. He asked why the rates declined over time.
I explained the Federal Reserve is currently raising interest rates, and many banks don’t want to get locked in long term; anticipating the Fed will pivot and start lowering them in the future.
The Biggie….
I then explained the difference between callable and non-callable CDs. A callable CD allows the borrower to “call in” the CD and pay it off at any time; which is exactly what the banks did in 2008 when the Fed dropped rates. Using the chart, I said you could get a 5-year CD (as that is when he will be needing money for college) at 4.6%; but there was no guarantee the bank would honor that; unless the CD was non-callable.
I showed him how to set certain search criteria for shopping CDs:
We set the criteria for new issues, 1–5-year maturity and non-callable. I hit search and a list of dozens of available CDs appeared. I’ve cropped the list for simplicity.
He quickly jumped on the second listing; pointing out that Wells Fargo Bank is offering a one year, non-callable, 5.3% CD if we bought it from Schwab; much higher than our local branch. There were dozens to choose from with various interest rates, payment dates and maturity.
As long as you asked…
With a furrowed brow, he asked, “Grandpa, why would anyone buy a CD from a local bank and get ripped off, when they can go online and get a much better rate, and it is a lot easier?”
I stopped for a minute; I too have wondered the same thing.
I explained that his great-grandmother was raised in a small farming community. She was one of the most loving, caring, trusting people I have ever met. I recall asking her once about why she did something and she said, “The nice young man at the bank said it was a very good rate.” She trusted him. Grandma was a smart woman, but uneducated when it came to banking and investing.
Why do people buy CDs locally? Because they trust their local banker, and are not educated.
We concluded, the best way to shop for a CD was online, search for non-callable, and then shop rates.
Much to my surprise, he immediately called his dad, told him the story, and said, “Dad, my CD matures before I get home. Don’t renew it. I know we have a Schwab college fund account. Let’s put the money there and get a better rate.”
We are heading back to Indiana soon, and it will be fun to complete the process.
What a wonderful grandpa/grandson experience for both of us. I know, Brock will be a terrific CD shopper for the rest of his life; and likely a good mentor for generations that follow.
As long as you asked…add it all up…a priceless experience!
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On The Lighter Side
We have enjoyed having Brock with us. Our initial concern about a 13-year-old being constantly bored has not come to fruition. He has played cards with his elders, having a fun time in the process. Working around my cancer treatments, we have managed to sandwich in some fun experiences and day trips, despite the 100-degree heat.
His last visit was 2017 and he wanted to update a photo he remembered. We had just planted a cactus and took a picture of him standing next to it. He wanted to do another.
Both Brock and the cactus almost doubled in size over the last six years.
For years I’ve dreamed of driving across the country with my grandchildren, kinda, sorta, an item on my bucket list. It reminds me a great deal of Kate Smith, “America the Beautiful.” The drive from Arizona to Indiana takes him across the Continental Divide, through 8 states, from the mountains to the prairies, not quite to the oceans white with foam. If my cancer treatment goes as planned, next week we will make that trip.
Quote of the Week…
I’m going to use a quote of my own and combine it with one of my favorites.
“A hidden secret to staying young. Always have something fun written on your calendar for the months ahead. Visualizing these fun times keeps you busy planning, gives you something to look forward to and smile. When the time comes, have a blast, and immediately start planning your next one.” — Dennis Miller
“You are never too old to set another goal or to dream a new dream.”— C.S. Lewis
And Finally…
Jo sent along some cute thoughts for our enjoyment:
- I want to grow my own food but I can’t find bacon seeds.
- This is my step ladder; I never knew my real ladder.
- I checked into the hokey pokey clinic and got myself turned around.
- Is there ever a day that mattresses are not on sale?
- Made with love really means, “I licked the spoon and kept using it.”
- According to the BMI chart at the doctor’s office, I’m 8″ too short.
- Anything seems possible if you don’t know what you are talking about.
- Talk is cheap because the supply always exceeds demand.
- There is no “I” in team, but there are three in “narcissistic.”
- Inventor of the wind chill factor died at 82, but he felt like he was 64.
- I’m on the lookout for #1, my dog isn’t house-trained yet.
- I married my wife for her looks, but not the ones I’m getting lately.
- If you wear a sweater and sweat, are you the sweater?
As I prepare for a cross-country trip, this one became my favorite:
- Do race horses slow down when they see police horses?
Until next time…
Dennis Miller
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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