Non FDIC Deposit Account Programs

J

jazz4cash

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We've had a few comments in the "Best CD, MM Rates & Bank Special Deals" thread about non-FDIC accounts and some agreed a separate thread might be helpful.

Here's a few examples:
Dominion Electric Reliability Investment1.5-1.75% Deposit Account
https://investors.dominionenergy.co...on-energy-reliability-investment/default.aspx

Uhaul Investors Club 2.675-4% Asset Backed
https://www.uhaulinvestorsclub.com/InvestmentOpportunities

GM Right Notes 1.75% Deposit Account
https://www.rightnotes.com/

Toyota Financial 2.00% Deposit Account
https://www.incomedrivernotes.com/en.html

Once again these investments are do not have Federal Deposit Insurance Corporation protection. Feel free to add to the list and post your experiences and observations.
 
<mod hat on>

Occasionally, we get "bank deal" posts that turn out to be too-good-to-be-true links, so please always be particularly careful before sharing any links offers in this thread. If you're not sure if something is good, post the info & questions - sans link - for other members to help vet.
 
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What was the comment about DERI withholding taxes automatically/ not paying interest on the amount withheld?
 
With the UHaul notes, one thing to be aware of and keep in mind is that they are amortized over the life of the investment. Meaning that with each quarterly interest payment they also return a portion of the principal. So, over the life of it, the same as your home mortgage, the payments are equal, but your balance will go down and with the last payment it includes the last of your principal and a tiny amount of interest.

Click on the link to the right of each investment opportunity for View Payment Schedule.
 
I tread carefully anticipating 100% of involved time, principle & interest is @100% risk of return.
But thats my view.

Good luck & Best wishes...
 
bolt said:
I tread carefully anticipating 100% of involved time, principle & interest is @100% risk of return.
But thats my view.
Click to expand...

You're welcome to your view, but what is it based on? Have you personally investigated/reviewed any of the details of those mentioned, or just going off the cuff?
 
I’ve been in DERI for about 18 months. When they first started, maybe 3 years ago, their interest rates were inferior to FDIC insured HY Savings accounts, there was no logical reason to join for about a year or so, when they got their act together and started to out perform.

The snail mail is only for opening the account. I haven’t had any online down time this past week at all and have been online a few times. They are essentially a high yield non-FDIC insured savings account. $1000 minimum to open, but you can go lower after that. There are 3 tiers of interest rates, currently 1.5% for up to $10k, 1.6% for over $10 to $49999, and 1.75% for over $50k. At their peak through April of this year they were at 2.75%. Rates are reviewed monthly and you are not notified of the changes.

Limit is 6 withdrawals a month, no less than $250 and no more than something like $3MM (yeah, right) per transaction. So it is no good for anything more than say a mortgage or car payment source , a place to park cash between planned trades, a monthly allowance etc.

They post interest monthly, but it appears to compound daily.

The oddest part of it, and they don’t advertise it so I’m not sure if it is optional or not, is they with hold Federal tax of 20% of interest earned per monthly interest payment, and it is a separate line item. So you lose the interest compounding on itself, which is roughly $7/yr per $100k for $1750 earned, so I don’t care about it, since my tax rate is always over 20% and then I don’t have to include the interest in tax planning for withholding.

You get free checking with the same 6 checks per month/$250 minimum amount. I’ve used 2 checks in the past year. Checks come in handy for mobile phone deposits where the receiver posts the check the business day it is deposited, vs online transfer which takes an extra business day, and for transfers to non bank payees, like a credit card or car payment bill not associated with a bank. Online transfers are only to banks. They do not recognize credit unions for some strange reason.

I’ve had zero complaints so far. I’m using it as my cash buffer while doing Roth conversions before I file for SS and a place to park cash to take advantage of short term MM bonus deals like CapitalOne360.
 
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I'm not keen on the 20% tax withholding and wonder why on that... legally it is a bond and none of my other bonds have taxes withheld. Not sure if it is a deal-killer but I don't like it and I particularly don't like that they fail to disclose it.
 
pb4uski said:
I'm not keen on the 20% tax withholding and wonder why on that... legally it is a bond and none of my other bonds have taxes withheld. Not sure if it is a deal-killer but I don't like it and I particularly don't like that they fail to disclose it.
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Based on my reading of the prospectus, it is the same as any other investment. You need to complete the form that you are not subject to back up withholding. Maybe the person who indicated 20% being withheld did not do it - 24% is the current rate when back up withholding comes into play.

See end of page 13 and top of page 14:
https://s2.q4cdn.com/510812146/files/doc_downloads/deri/deri-prospectus.pdf

Backup withholding may apply to you if you fail to comply with
applicable tax identification requirements.
Click to expand...
 
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Ok, that makes more sense. If I ever get online account access I'll let you know if they withheld any tax on my interest.
 
njhowie, thanks for clearing that up on the withholding. Made no sense otherwise.

I think these programs are fairly interesting. I believe I participated in one long ago, maybe Ford Motor Credit. Just want to watch the credit ratings of the offerer, indeed as you would with any investment.

I do not view these as a direct substitute for FDIC insured funds. But they still can have a place as they are unique with the cash availability and fixed principal balance.
 
I never see any withholding until I withdraw. I thought the description was withholding monthly as the interest gets credited to the account. That 20% does not compound. I don’t like it either.

EDIT: I just took a quick look into the backup withholding requirements and it does imply that each payment of interest is subject to withholding at a rate of 24%.
 
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I just went in to my account online, and you are correct. It is 24% not 20% withholding. Yes, it is withheld monthly as interest posts. Such a small amount when compared to the increased interest earned compared to 1% or less CD/inline savings, it’s not an issue with me, but good to know it can be changed.
 
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Montecfo said:
njhowie, thanks for clearing that up on the withholding. Made no sense otherwise.

I think these programs are fairly interesting. I believe I participated in one long ago, maybe Ford Motor Credit. Just want to watch the credit ratings of the offerer, indeed as you would with any investment.

I do not view these as a direct substitute for FDIC insured funds. But they still can have a place as they are unique with the cash availability and fixed principal balance.
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Agreed... but comparing 1.6% DERI to 0.6% DiscoverBank one is getting paid a 1% premium for the credit risk of ~BBB vs risk-free.

By comparison, it looks like the premium between one-year BBB corporate bond and a one-year CDs is about 0.7% so the 1.0% DERI risk premium seems fair to me.
 
About ten years ago when on-line accounts were under 1%, I had accounts in GE Interest Plus (2009- 2014) and in Duke PremierNotes (2012 to 2016). I would limit my account balances to about $50K plus $1 to gain the highest interest tier, to limit risk as they are not FDIC insured. At the time you would get that rate on the entire account balance. I don't recall if they had on-line account access, I only recall paper monthly statements. I also don't recall ACH being available. I believe deposits were paper checks and snail mail, withdrawals were by checks supplied when I opened the account. Worth a phone call to clarify what services are currently offered.
I eventually moved out of these accounts as premium interest shrunk over time and decided they were no long worth the extra risk.

Glad this topic came up as It is time to investigate all options. I look at these accounts as the equivalent of buying a very liquid corporate bond.
 
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pb4uski said:
Agreed... but comparing 1.6% DERI to 0.6% DiscoverBank one is getting paid a 1% premium for the credit risk of ~BBB vs risk-free.

By comparison, it looks like the premium between one-year BBB corporate bond and a one-year CDs is about 0.7% so the 1.0% DERI risk premium seems fair to me.
Click to expand...

Yes. And that is before placing value on check writing and fixed principal balance.
 
Montecfo said:
I think these programs are fairly interesting. I believe I participated in one long ago, maybe Ford Motor Credit. Just want to watch the credit ratings of the offerer, indeed as you would with any investment.

I do not view these as a direct substitute for FDIC insured funds. But they still can have a place as they are unique with the cash availability and fixed principal balance.
Click to expand...

I completely agree. I'm a bit cautious on the DERI, GM, and Toyota only because they are implied to be substitutes for savings accounts but they really aren't as we both understand. When we get down to under 2%, I don't get turned on by any of these. The same way I wouldn't purchase any (municipal) bond which paid under 2% with no chance for higher return, I feel the same here. The risk/reward is simply not justified in my mind.

In the case of UHaul, which I have twice had my finger on the button to create an account but still haven't, it is clearly an investment on par with a secured bond. I began investigating a couple years back when they were paying 5% to 8% on some of them (still kicking myself for passing then). If the security gets destroyed or declines in value and worst comes to worst, Amerco (UHaul's parent company that's profitable and been around for 75 years) is still on the hook. On the flip side, having the assets securing the individual investments is good protection...though somewhat questionable how much taking possession of dollies, furniture blankets, or other moving equipment may be worth in the secondary market. For the longer term higher yielding opportunities like buildings and real estate, though they too can decline in value, it would seem they'd better hold their value. Regardless, in any case, still better than an unsecured loan/bond.

Additionally, the amortization "feature" of how they pay out is interesting - you are the lender, they are the borrower. As the investment ages and approaches it's "end of life", your stake in it automatically declines, reducing your risk. My thoughts surrounding this is that I would come up with an investment plan whereby as the quarterly payments are thrown off, I'd reinvest in to additional ones - compounding and growing over time. I need to think more about this - I'm thinking the way to do it is to always roll the payments in to the longest maturity with the highest yield offered at that time. Looking at maybe $5000/month for the first 3 months, which would provide continual monthly payments going forward.
 
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How do financial products from DERI and Uhaul meaningfully differ from investing through organizations such as Lending Club and Prosper?

I also noticed this on the Uhaul site for notes backed by forklifts. It sounds so scary that I am thinking I must be misunderstanding it.

Legal Notice

We have the right to remove the forklift collateral from time to time in our sole discretion. In the event of such removal, there shall be no additional repayment of principal on the notes and there will be no addition of further or substitution collateral.
Click to expand...
 
Chuckanut said:
I also noticed this on the Uhaul site for notes backed by forklifts. It sounds so scary that I am thinking I must be misunderstanding it.
Click to expand...

This is standard on all of their asset-backed notes. It is as a result of equipment potentially needing to be taken out of service due to aging out or damaged so as not to be repaired.

They do specifically address this in the FAQ:
What if the collateral securing my U-Note® is stolen, lost, damaged, destroyed or taken under a condemnation?

While any form of loss or damage to the asset will reduce the value of your collateral, AMERCO's obligation to repay the U-Note® in full will continue to exist. In the event of a loss, you will remain secured in the remaining collateral securing your U-Note®. AMERCO has no obligation to replace or repair collateral. In the event of such a loss, AMERCO will have the choice to redeem the remaining balance of the U-Note® or to continue making the scheduled payments. Please refer to the prospectus and the prospectus supplements for more detailed information.
Click to expand...
 
pb4uski said:
Agreed... but comparing 1.6% DERI to 0.6% DiscoverBank one is getting paid a 1% premium for the credit risk of ~BBB vs risk-free.

By comparison, it looks like the premium between one-year BBB corporate bond and a one-year CDs is about 0.7% so the 1.0% DERI risk premium seems fair to me.
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Yes. I have never been interested in this type of stuff because the bottom line has to be that the borrower is offering premium rates to individuals only because he would have to pay a higher rate to more sophisticated lenders. And it can't be a small difference because administering these programs is not zero cost or zero hassle for the borrower.

I know these are popular and am not against them in principle, but they are not for me. TANSTAAFL.
 
Chuckanut said:
How do financial products from DERI and Uhaul meaningfully differ from investing through organizations such as Lending Club and Prosper?
Click to expand...

The difference is huge.

DERI, UHaul and the others are investing in the corporate enterprise - that company is obligated to you and their credit strength backs the investment. I know UHaul, I know GM, I know Toyota, I know Dominion. Do you know Joe Shmoe who Lending Club and Prosper are funnelling your money to?

When you invest through Lending Club or Prosper, you are lending to some individual somewhere. If the borrower stops paying and defaults, what are you going to do? Lending Club and Prosper are not very responsible, and aside from doing some basic things to try to recover something, in the end you're likely out 50% or more of the investment.

From what I've read from a person successfully investing on the P2P platforms, it is a fair amount of work. This individual is making a good return. However, he keeps his individual investments on each loan extremely low - like $25 and $50...so he always has hundreds outstanding at any one time. He accepts that there will be some percentage of defaults, whatever that may be 3%, 4%, 5%, but keeping the investment amount small, the potential loss on any one will likewise be small. Now, for the average person, will he/she put forth the amount of effort required to investigate 100 or more individual loans? Is the amount of time to research worth the 5% to 10% annual return on $25 or $50 each?
 
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I think for now, I'll stick my high yield chasing to things like: BSJM where the risk is spread out over many bonds, and it pays out at the end of 2022 all the bonds.

https://www.marketwatch.com/investing/fund/BSJM

Or even AT&T which pays a dividend of 7.x% , The company has the cash flow to pay the div, and work down it's huge debt.

But keep the ideas coming as perhaps someone has something that will be really great.
 
njhowie said:
The difference is huge.

DERI, UHaul and the others are investing in the corporate enterprise - that company is obligated to you and their credit strength backs the investment. I know UHaul, I know GM, I know Toyota, I know Dominion. Do you know Joe Shmoe who Lending Tree and Prosper are funnelling your money to?

When you invest through Lending Club or Prosper, you are lending to some individual somewhere. If the borrower stops paying and defaults, what are you going to do? Lending Club and Prosper are not very responsible, and aside from doing some basic things to try to recover something, in the end you're likely out 50% or more of the investment.

From what I've read from a person successfully investing on the P2P platforms, it is a fair amount of work.
<snip>
Now, for the average person, will he/she put forth the amount of effort required to investigate 100 or more individual loans? Is the amount of time to research worth the 5% to 10% annual return on $25 or $50 each?
Click to expand...

Thanks. I appreciate your insight.
 
Sunset said:
I think for now, I'll stick my high yield chasing to things like: BSJM where the risk is spread out over many bonds, and it pays out at the end of 2022 all the bonds.
Click to expand...

I'm not passing any judgement, but looking at 1 year, 3 years, and life, the fund continually goes lower. It's not clear that the dividends compensate for the NAV/price loss.

Also, I haven't personally invested in any BulletShares or equivalent, but I would think things could get a bit dicey/volatile in the last year as the assets are sold off approaching the end date. Just something to consider as 2022 nears.
 
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