5 Year CD Interest of 4.3 - Trust?

[DatumPoint5]

Has anyone here ever dealt with a bank called ANZ? ANZ is the "Australia and New Zealand Bank".

I have some cash I want to park for a few years and I have been closely watching CD rates waiting for an opportunity. This morning, I visited Bank Account Rates | Bank Reviews, Deals & Promotions | Deposit Accounts and lo and behold there was a listing for a 5 year CD paying 4.3 percent? I was a little "stunned".

If it were a "normal" bank, I would have already pulled the trigger, but, the bank offering the rate was located in Guam. Guam is a US territory and this bank is covered by the FDIC as you can see by clicking here. ANZ has branches in many countries and also has a presence in NYC. DepositAccounts.com has their review here. The ANZ Bank website is located here.

I fully trust most online banking that I "recognize" (e.g. Ally, CitBank, GECap, PenFed, etc.), but, for some reason, I am a little hesitant to open an online account "all the way over in Guam".

So. I guess the reasons for my post is twofold.
1 - Hey everyone, FYI, there is a bank paying 4.3 percent on a CD!
2 - Am I crazy to consider parking 100k "over in Guam"?!?!?

 

[Closet_Gamer]

Seems sketchy. I think we have to ask the question "how can they do that and make money?" If the answer isn't obvious, there is probably some nasty fine print or hidden risk somewhere. Be curious to see what else you find and what you decide to do. Good luck.

 

[thefinancebuff]

This morning, I visited Bank Account Rates | Bank Reviews, Deals & Promotions | Deposit Accounts and lo and behold there was a listing for a 5 year CD paying 4.3 percent? I was a little "stunned".

ANZ Bank is a legit (largest?) bank in Australia. Deposits at ANZ Bank's branches in Guam or NYC are FDIC insured. However I don't see any evidence of ANZ's US operation offering 4.3% on 5-year CDs. I followed your links but I just don't see them. I checked ANZ's website after switching country to Guam. I still don't see them. It might be offering 4.3% in Australia.

 

[braumeister]

Looking at the website, I see

Terms and Conditions available on application. Fees and charges apply.

which doesn't give me a warm feeling.

I'd look into it before sending them a check.

 

[OAG]

Reasonable amount of information here (drill down) including the 4.3 interest on 5 year Term.

ANZ Term Deposits - compare term deposit rates | ANZ

 

[DatumPoint5]

I still don't see them. It might be offering 4.3% in Australia.

The rate was posted on the DepositAccounts website. Here is a link to the actual ANZ cd rate page on the DepositAccounts website. As you can see, the 4.3 percent was posted today (5/31/2014). You have to scroll about half-way down the page to see the CD rate listings.

I can't find it on the ANZ website yet. I will post when I do.

 

[DatumPoint5]

Reasonable amount of information here (drill down) including the 4.3 interest on 5 year Term.

ANZ Term Deposits - compare term deposit rates | ANZ

Thanks OAG!

 

[thefinancebuff]

Reasonable amount of information here (drill down) including the 4.3 interest on 5 year Term.

ANZ Term Deposits - compare term deposit rates | ANZ

The country on the top says Australia. Are you sure it's offered in the US?

 

[rbmrtn]

The country on the top says Australia. Are you sure it's offered in the US?

Right those are the Australia rates. They don't appear to be offered in the US.

In guam they offer "TIME DEPOSITS" but do not have the rates listed. Time Deposit Account | ANZ Guam

The Guam location does look to be FDIC insured, the Australian not.

FDIC: BankFind Details

 

[DatumPoint5]

Oh well... Probably "chasing a ghost" on this one. Somehow, DepositAccounts must have picked it up "by accident". DepositAccounts only shows interest rates for US banks and credit unions, but, somehow, maybe this one "crossed over"?

Sorry for the false alarm! And I certainly appreciate the feedback.

Much appreciated!

 

[Alan]

In looking at the eligibility for opening a term deposit account it looks like you have to be an Australian Resident or an Australian citizen.

http://www.anz.com/documents/au/aboutanz/Esanda-Term-Deposit-Terms-and-Conditions-final.pdf

Section 1
Opening an Esanda
Term Deposit
1.1 Eligibility
You may only open this account if you:
•
are an individual of at least 16 years of age and are an Australian
citizen or a foreign citizen living in Australia

 

[Letj]

Seems sketchy. I think we have to ask the question "how can they do that and make money?" If the answer isn't obvious, there is probably some nasty fine print or hidden risk somewhere. Be curious to see what else you find and what you decide to do. Good luck.

This is not unusual at all. In fact, it's on the low end. Many banks around the world offer high interest on deposits, especially credit unions. Their borrowing rates are even higher. It's not unusual to pay 12% to borrow money for buying a primary residence. I've seen that in places I traveled. Needless to say they are outside of the US and they are not FDIC covered. Many of these banks are banks whose names you would recognized. However, the rates are offered to savers outside the US.

 

[Al18]

For a more secure investing, check out my suggestion at the bottom of this thread
http://www.early-retirement.org/forums/f28/a-little-help-with-parental-situation-please-72209.html

 

[DatumPoint5]

Thanks for posting that link Al18. I enjoyed reading it. In fact, after reading it, I think I could actually BE one of those parents!?!? I also do not like placing my principal at risk.

In reviewing your post at the end of that thread, I can say that for someone like me it is not easy to break a 100k amount into the 76/24 method you described. In my mind, taking the full 100k and buying a CD at 3.2% for 10 years means I am "guaranteed" to have 137,024.10 dollars at the end of the 10 years(100k*3.2% for 10 years compounded annually).

Using your method only "guarantees" me 104,138.32 (76k*3.2% for 10 years compounded annually) and then an additional, hopeful, possible, "hypothetical amount" between 0 and 39k. I have never understood why anyone would risk their hard earned money for such little "upside" to the risk being taken...

If I were one of those parents, and, to my way of thinking, we would be looking at only two options.....
1 - We could buy the CD and ignore the "market noise" and have an additional 37k
2 - We could "protect our original principal" with a 76k sure-bet on a 3.2% CD. And then, in addition, "spin the roulette wheel" to see if we get something between zero and 39k

For conservative people like me, taking the 37k and ignoring the "market noise" will always win. In this case, the upside to the bet is only about 2k. There just isn't enough upside to the "bet" for me!?!?

If I am misunderstanding the numbers in your post, please correct me. I am probably "financially challenged" when it comes to numbers, and, like the parents referenced in that thread, I don't trust my money to others easily.

 

[Al18]

With a brokered CD, there is NO compound interest (unlike a bank CD). With the brokered CD, a $76K CD at 3.2% will earn $2432 in interest per year, and that amount is deposited into your brokerage money market account.

I think it's highly unlikely all 500 companies in the S&P 500 will go bankrupt in 10 years. So the most likely, worst case scenario would be the S&P being flat for 10 years, which will net you $124K total.

The advantage to keeping 24% in the S&P500 is it gives you some protection against inflation. In my opinion, it's more likely the inflation rate will be higher in 10 years than it is now, and it might be more than the 3.2% per year you're getting in interest on the CD.

 

[DatumPoint5]

Al18 - Thank you for the reply. I was unaware of how a brokered CD worked.

However, my "simple math mind" still can't get over the fact that I am looking at two options.

1 - Buy the 100k CD and have 32k guaranteed in interest. Done.
2 - Buy the 76k CD and have 24k guaranteed in interest. And then "hope" to "beat the bank" for the 8k difference in interest I just gave up.

Basically, I believe what you are saying is that I have to bet 24k of my principal into the S&P and "hope" it inflates to 32k before I "make" any money on the deal. I need the S&P to rise about 25 percent over those 10 years just to break even. After some research, I believe I see a few 10 year periods where the S&P did not meet that goal. The 70's did not make it. The 80's did. The 90s did. The 2k00's did not. The 2k10s are still not done, so, it's a betting man's game. But, given the last 40 years, only 50 percent of the 4 periods "won". That, to me, is similar to a "coin flip".

I appreciate your taking the time to "school me". I really do. I hope the parents on the other thread could be watching this discussion because I believe a lot of people like them, and certainly I, do not understand most of what is discussed on these forums. Soon, I will post a "Hi, I am" to this forum and you will know that I come from simple beginnings. I have never "played the market" or any other "investment games". I do not say this with pride because it pains me to see my banking account and 401k account totals compared to what they could have been if I "played" this game. My cash was simply that (e.g. cash! buried!) However, still, I (and probably those parents) just don't see how you can take 24k, bet it, and then hope to get 32k just to break even on the 8k spread?

Upon some reflection, I guess what you are trying to say I would be betting on, is that the value of the companies in the S&P will always somehow reflect inflation (at a minimum). And, if inflation ran like the 70s did (or worse Japan) then, instead of "locking myself" into the 3.2%, I would have at least somehow kept up with inflation as the value of the companies in the S&P adjusted in "value"? Sort of like an "insurance policy" hedging my risk of inflation?

I hope our conversation about this issue will help to shed some light to others on this forum who have parents that just won't do anything other than "buy a CD". I am one of those parents?! We (the parents and I) just have an innate distrust of other people (investment banks, securities traders, etc) deciding our money's future. And somehow, someone needs to develop a logical path we can follow so we can begin to emerge from the shadows with all the cash we have buried under the mattress and also held in the old yellow coffee can in the backyard by the blueberry bushes!! (back where the dog poops!)

 

[Al18]

DatumPoint5,
It sounds like you have a good understanding of this investing method. I fully understand your distrust of Wall Street - I share it. I have a big chunk of my money invested in CD's also, but not all of it.

I urge you to run your retirement numbers on your favorite retirement calculator (ie. Firecalc) and decide for yourself.