My last posts about picking a brokerage talked about how my wife and I had decided to go with ShareBuilder on a temporary basis, but were now looking to switch to somewhere else.  I know it has taken many more months then we first envisioned back then, but in the last week we’ve gotten off our fat asses and started to transfer our GI portfolio to TradeKing.

Breaking through to being able to trade options.

It turns out that back in March we had made a decision to go with InteractiveBrokers, and even spent some time writing code to explore automated strategies with their interactive API (spent more time coding than posting to this blog in fact!)  But then we came to the actual account opening and discovered their minimum was more than the total of our GI portfolio.  They wanted a minimum of $10,000 USD whereas we had only slightly over $2,500.  So we jumped back to square one of evaluating other brokerages, albeit in a very, ahem, slow manner.

It’s been almost 3 months since then, and while we did do a bit more comparison research, what’s really kept this on the back burner (and kept the blogging rate down) was other important projects going on in our lives.   However, I can now report that we’re actually taking concrete steps to get things moving with TradeKing: opening accounts, establishing ACH linkages, filling out ACAT forms — oops, wait.  Read on.

Unlike most other financial institutions we’ve dealt with, TradeKing is a real stickler for only allowing like-to-like account ownerships when it comes to moving money.  If you want to establish an ACH transfer, and you have individual ownership of your TradeKing account, they insist that you also have individual ownership of the linked bank account.  And likewise for joint accounts.  Well, it turns out my wife and I have not really been sticklers for this previously, and thus have a mish-mash of accounts either individually owned by me, or individually owned by her, or jointly owned by both of us.   This has made it difficult to move our total GI portfolio to TradeKing.   I strongly recommend you figure out how you’ll make these transfers work before opening an account with them!  In the end, we’ve opened three new accounts at various institutions this week in order to establish the linkages we want.

Also, there has been two frustrating consequences of having gone with ShareBuilder to start our GI investing portfolio.  First, it turns out that ShareBuilder is not part of the ACAT network, and thus transferring assets out of a ShareBuilder account requires a manual process which they state in the fine print can take up to 30 days.  I called ShareBuilder’s customer service to get an idea of the realistic time it takes and was told by two different customer service people that it will take a minimum of two weeks, and more likely a goodly portion of week three, for them to complete their side of the transfer.

Second, ShareBuilder can’t transfer any partial shares as part of the transfer process.  So you either have to do a partial transfer where they’ll leave the fractional shares in your account (Honestly, why would they suggest that?  Does anyone really want to own JUST fractional shares of a stock or ETF???) or do a whole transfer in which case they liquidate the fractional shares and charge you a full comission on each position’s fractional share sale.  i.e. If you’re long in four positions with fractional shares, that’s four full commission trades at $9.95/each.  Yech.

In the end, we ended up merging our two individual accounts with them into one, at which point we only had two long positions.  It was cheaper and faster to liquidate these positions and insta-move the resulting cash to our ING Direct accounts for transfer to TradeKing than it would have been to go through the asset transfer process.   Yes, we actually have to wait for the trades to settle prior to moving the cash around.  Yes, there’s a few day delay while waiting for ACH transfers.  And, yes, we’ll end up owing some income tax as a result of selling out of our positions.  But honestly, I just wanted to get on with things.  We’ve dragged our feet enough.

So earlier this week my wife and I opened up a new online savings account over at Ally bank, and I’ve gone back since to browse around Ally’s website trying to understand how to make the best use of their services and products.  The information about their “No Penalty CD” really caught my eye, as it seems almost too good to be true.

No longer locked into a CD term (image: http://www.sxc.hu/profile/KillR-B)

If you open up a “No Penalty CD”, Ally gives you a guaranteed, locked-in, fixed interest rate for a period of up to 9 months on money you put into the account.   That rate is currently a VERY competitive 2.15% APY for any deposited amount.  That is, there is no minimum and no tiering of rates.  But the big kicker is that, after an initial 6 day period after funding, you can withdraw all or part of your funds from the account without paying a penalty or fee of any kind!  They’ll give you your full balance plus any accrued interest at any point from +7 days to +270 days.  In effect, what Ally has done is given you extreme liquidity control at a very competitive, guaranteed interest rate.

I’m not kidding when I stress that Ally is giving you a competitive interest rate on this CD product.  For their own “Classic CD” account, as of today, the 9-month term only has a 1.75% APY.  A 6-month term is 1.85% APY.  And a 3-month term is 1.25% APY.  Just days ago I did a survey of 6-month CD rates and found the highest I could find to be only 1.90% APY.  The “No Penalty” CD is paying 0.25% higher than that.

There are a number of ways you could use this to your advantage.  The most obvious is that you can park a chunk of money in the account, and should interest rates rise, simply withdraw the money and move it to a new account at the higher interest rate.  You have no risk to being locked in and missing opportunities.  This is totally in your favor as you’re rate will not go down for 9 months, but you can “float” it up.

Another obvious use is for those just starting to, or in the middle of, building an emergency fund or income replacement fund.  For an emergency fund, it’s almost a no brainer to put the whole kit ‘n kaboodle in one of these accounts and let it earn maximum interest with no risk of loss (did I mention this was FDIC insured yet?)  And you can quickly get your money out in the event of an emergency.  For income replacement, you’re goal (obviously) is to ensure that you have replacement income coming in each month right?  But typically, to get a good interest rate you needed at least 6 months worth of that amount in order to ladder 6-month CDs so that one was maturing each month.  Yeah, you could find 3-month CDs but they aren’t a great deal IMO, and still you needed 3 months worth to avoid having gaps where you’d have nothing maturing.  Well, now you can put ALL of your income replacement in ONE account and not worry about paying penalties should you need to withdraw money each month.  And, again, should interest rates go up at all, you can easily move the whole fund to a new account at that higher rate.

You might be thinking you should still ladder an income replacement fund using multiple “No Penalty” CD accounts in order to hedge against interest rate changes, but keep in mind that you can simply close out any low interest rate accounts whenever you see a higher one available.   So there is no longer a need to make the effort of laddering.  Instead, you’re efforts should be spent periodically checking for rate changes, and doing one of three things.  First, if rates are lower, you’d certainly want to preserve any money in higher fixed rate accounts, so no action needs to be taken.  Second, if rates are the same, you should “roll over” any existing account(s) into a new one.  Why?  Because that gives you a new 9-month period of fixed rate interest, and thus increases your odds of not getting stuck with lower rates when you HAVE TO renew.  And third, if rates are higher, you’d always want to liquidate existing account(s) and roll them into a new “No Penalty” CD at the higher rate.

You might have noticed that I mentioned multiple accounts.  But wait, we weren’t laddering so why might you have multiple accounts?  Well, one thing you can’t do with a “No Penalty” CD is add money during the term of the CD.  Thus, if you’re trying to contribute each month to your emergency or income replacement fund, you’d need to be opening new CD accounts to do it. (Remember, there is no minimum balance to open one of these accounts! So you’d only use something else if it had a better rate.)  Just remember that it’s always in your favor to “roll over” your funds to a new “No Penalty” CD if you see it having higher rates than you’re currently earning on an account.

My wife and I will be putting our money where our mouth is on this one.  We’ve already opened one of these accounts with money we had transferred from FNBO Direct, which is actually one month’s worth of income replacement from when we didn’t renew our 6-month CD ladder.   And we’ve started the process of moving the other two months of income replacement via ACH transfer to Ally.  As soon as it’s available we’ll roll that into one new “No Penalty” CD, and if the current rate then is equal to what our existing account is getting, we’ll combine all three months worth into one new account.   The plan then is to check back once every two weeks or so to see if we should renew to capture a higher rate, or extend our 9 month rate lock.

Just a short note to log that FNBO Direct dropped their online savings account’s APY to 1.50% on June 22, 2009. FNBO’s previous rate change was to a 1.65% APY on May 18, 2009, so they’re continuing their downward trend which has been going on ever since we opened our account with them in late 2008.

FNBO Direct is currently paying the exact same APY as ING Direct’s savings account.  This is the first time I can remember this happening.   Is something going on at FNBO?  Or is ING trying to keep ahold of, or even attract, deposits by maintaining rates higher than they otherwise would?

Have you seen those new TV advertisements from Ally Bank?  I love the one where the little girl gets denied the real pony and gives a withering, “You totally suck” stare to the Baldwin-look-alike.  Anyway, after doing a quick check of high-yield savings rates on Bankrate.com, we’ve decided to take the plunge and open up a new savings account at Ally Bank.

Ally Bank currently offers 4 different products: an online savings account, a money market account, a classic CD, and a no penalty CD.  We are going with an online savings account as it has the right mix of features for us.  The big differentiators between it and the money market account is that you are limited to withdrawals via ACH transfer, wire, or cashier’s check.  For that, you currently get an extra 0.15% APY (savings has 2.00% APY vs. money market’s 1.85% APY).  The savings account also has a no minimum balance, no monthly fees, compounds interest daily, and of course is FDIC insured.

It should be noted that these APY rates are variable, and are not guaranteed for any length of time.  But then, as we’ve all noticed, the rates at other banks are also variable.  For example, FNBO Direct just two days ago, dropped their APY from 1.65% to 1.50%, and that’s after falling from 3.25% in December, 2008 — just 6 short months ago.  FNBO’s continued cuts are actually part of the reason we’re opening an Ally savings account.  So long FNBO.  All money we had with you is now on its way to Ally accounts where it will earn a 0.50% higher APY.

It wasn’t very hard at all to sign up for the Ally Bank savings account, though I think it may be limited to US customers only.  You’ll just need a driver’s license or other form of government ID from each account owner, and the typical address, social security info, and other contact info.  For an initial funding deposit, you can opt for ACH transfer or to send them a check, and while I didn’t actually complete this, their form doesn’t seem to complain if you enter a $0.00 initial deposit.   Opening a joint account for my wife and I took all of about 15 minutes.

Once you have your account open, you can easily link it to other checking or savings accounts for ACH transfers.  Ally offers the now quite typical “test deposit” method to verify the linkage, which is where they make two small deposits to the account and ask you to tell them what those amounts were.  This takes a couple days to complete due to the nature of ACH deposits, but goes quite smoothly.   Ally also offers a postal mail agreement method but I’ve not done that.

My only frustration with the account opening process was with picking my “security image”, which is an image they show you once you enter your username in the login process.  The idea is you make sure the image, and matching “security phrase”, come up as what you entered prior to entering your password.  This helps make sure you’re not at a spoofed site and giving your password to some hacker.  Anyway, they have a ton of options to pick from for these images, but make you go through them at a rate of 8 at a time, so it will take you quite awhile to find a familiar image if you want to use something like what you use at other sites.  Worse, after I spent 5+ minutes finding a familiar image and moved on, at the end of the process it had forgotten what I’d picked!   I had to go through it again.

One nice thing I’ve noticed right away is that, like ING Direct, Ally’s website shows you the uncredited, but earned interest associated with your account.  I really missed this at FNBO Direct’s website.

One other set of comments before I finish up here.  Ally Bank is a rebranded GMAC Bank, which went kaput not all that long ago.  There has been a lot of recent publicity regarding Ally paying impossible interest rates in order to attract funds.  In fact, in early June they lowered rates significantly (about 0.50% APY) after the FDIC started to question them.   However, deposits with them are FDIC insured (FDIC Cert: 57803) so we felt safe using their products for money we don’t need for day-to-day living expenses.  In fact, we wanted to get in on the good rates before they decided they didn’t need to attract deposits and dropped rates to something more statistically normal.  It remains to be seen whether Ally’s statements about having “an asset generation platform that enables us to put deposits to work profitably” will keep interest rates higher for the long term. In the mean time, we’re enjoying the bump up in APY.

It’s that time of month again, and again we’re backing off of signing up for another 6 month CD term because rates just don’t seem worth it to us.  Instead we’re keeping this month’s EF (really income replacement) money in a savings account.

As a reminder, my wife and I have saved up 6 months of living expenses in cash as our Emergency Fund.  We’re working on adding to that to get it to 9 months, but that’s a different post.  We plan to use this money only in the event of catastrophic income failure, or equally disastarous expense failures such as a severe medical emergency.  Because of this plan of access, we’ve chosen to break up the investment of these funds into monthly chunks, i.e. a 6-month ladder, where each chunk can be locked into an investment for no more than 6 months.  Typically those investments are 6-month Certificate of Deposit.

However, for the past two months and now going on to a third, we’ve opted to prefer the slightly lower return, and rate fluctuation risk, of keeping the monthly chunks in a high-yield savings account.  The main reason being that the liquidity concerns have trumped the small differences in APY between a 6-month CD and a savings account.

image: http://www.freeimages.co.uk/

For this month, my survey of CD rates showed two interesting things.  But first, a quick summary of the rates I found (as of today’s date):

• ATFCU: 1.86% APY
• FNBO Direct: 1.00% APY
• Ally Bank’s classic CD: 1.90% APY (the highest no-minimum rate listed on Bankrate.com’s 6-month CD rate suvery.)

First, I found that my local credit union has actually INCREASED their 6-month CD APY for the first time since we started monitoring rates.  It is up to a 1.86% APY from a 1.78% APY.  Not a huge raise, but at least things are moving in the right direction.

Second, it showed that APYs from savings accounts are still very competitive.  In fact, a quick check of high-yield savings rates on Bankrate.com shows a number of options currently paying a 2.0% APY, or higher.   Yes, these rates can fluctuate versus the locked-in rate of a CD, but you also have higher liquidity for these so it comes out a wash to us.

In short, we decided to not roll-over our 6-month CD yet again this month.