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November 30, 2005

Freakshow finance

Right now I bank with Netbank. However, they recently cut the interest rate on their checking accounts to 1% for accounts under $2500. For accounts over $2500, they have expand their offering, with three free ATM transactions per month and a 1.5% interest rate.I love their money market account. It might only yield 3.36% to ING direct's 3.5%, but you can write checks and pay bills from it, so in my book it is far more functional.

But here is an interesting idea I learned about on PF Blog, GMAC demand notes. They sound a bit scary:

Demand Notes is an unsecured and unsubordinated debt obligation of GMAC ranking equally with all of our other unsecured and unsubordinated obligations (other than obligations preferred by mandatory provisions of law). Demand Notes is neither a bank account nor a money market fund and is not FDIC insured.

But these notes are essentially short term bonds issued by GMAC that you can write checks and pay bills against, yet get over 5% interest. These are not risk free, in fact GM, who owns GMAC is on the verge of bankruptcy, but GMAC is a better credit and may be spun off. Nevertheless, these still could be a part of a diversified investment strategy.

Posted by OneEyedMan at November 30, 2005 9:20 AM

Comments

This doesn't seem like a good deal given the credit risk involved in the short-term on GMAC. GMAC 1yr bonds trade for far more than 5% (more like 9 or 10%). Given that emigrant savings accounts earn 4% and are FDIC insured the payoff seems poor...

Posted by: -M- [TypeKey Profile Page] at December 1, 2005 8:01 PM

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