On 12/27/2012 1:46 PM, James Salsman wrote:
I'm also rather skeptical of the underlying claim about the superiority
of credit union CDs in this context
So I googled "credit union 6 month certificates of deposit best rate"
and found http://www.gobankingrates.com/cd-rates/6-month-cd/ which
shows offers of 1.47% for six month and 1.86% for 12 month CDs from
Metropolitan Service Credit Union, all of which are federally
guaranteed for up to $250,000, the same amount the government
guarantees all Citibank deposits per depositor for any total. Their
next four top rates, all over 1.0%, are also from federally guaranteed
credit unions.
None of those rates are current, from quick investigation they appear to
be anywhere from two weeks to two months old. As any published rate
sheet will tell you, rates are subject to change without notice. Where
the actual websites, as opposed to this aggregator, are more up-to-date,
it looks like the rates are often significantly lower. Furthermore, even
the outdated published rates have significant limitations that may
render them unworkable. For example, while deposits may be guaranteed up
to $250,000, the institution may not actually offer certificates up to
that amount. In at least one of the examples I found with that link, the
credit union is publishing rates for CDs that are not actually
available, and it appears the only products actually available are for
17- and 23-month terms.
Credit unions also have membership requirements, and while the
limitations around those have loosened significantly in recent years,
it's not as simple as finding the highest rate and opening an account.
Even a consumer would need to figure out which ones they can join first
before shopping based on rates. The membership question alone would
probably rule out any of the examples found, and for an organization
like Wikimedia you'd have the additional issues of whether they support
business accounts and what services they offer in that capacity.
As Garfield also mentioned in the IRC office hours, part of his mandate
is low risk. In finance, that tends to be reflected in wariness of
institutions as small as these. They're less accessible, less equipped
to provide the level of services needed, and more vulnerable to change
(which can mean either failure or acquisition). While consolidation is a
bigger factor in the volatile small banking industry, small credit
unions are hardly immune themselves. And while it's easy to talk about
federal insurance as a backstop in case of outright failure, as a
practical matter there may be a lot of time and hoops involved to
recover your deposits in such situations, which runs counter to the
focus on liquidity for cash reserves.
Donor funds need to be managed wisely, but simply performing a Google
search for the best interest rates is not all that useful a tool here.
If somebody wants to come to Garfield and tell him, "I've had some of my
own money in a CD with Bank or Credit Union X for the last 6 months,
I've been getting X% and I'm about to renew at a similar rate, and I
know they can handle business accounts like yours", I think information
like that might have more practical value. In the meantime, I won't try
to micromanage the work of our financial professionals without having
clear options for improvement ready to suggest.
--Michael Snow
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