MoneyRates Blog

Mexico’s richest man, one of the richest men in the world, Carlos “Slim” Helu, was on CNBC the other day claiming that Mexico’s banks and overall financial system are in excellent shape, especially when compared to the still troubled state of many American banks.

Meanwhile, three of the four biggest banks in the world are headquartered in China.

The increasing prominence of foreign banks begs the question:

Would you buy a jumbo CD from a Mexican bank? Or a Chinese bank?

If not, why not?

Jumbo CDs Express a Desire for Perfect Safety

The question about buying CDs from Mexican banks is a bit misleading because the great majority of Mexican banks are actually foreign-owned. Banorte, founded in 1899, is the only large Mexican bank that’s not foreign-owned.

Nevertheless, it is clear that many conservative investors would not choose to purchase jumbo CDs from banks that operate primarily in Mexico–even if the rate on that CD was higher than competing offers.

This reluctance is no doubt partly cultural (the kidnappings don’t help, for instance). Also important, though, is the fact that the banking system in Mexico does not benefit from the protection of an ironclad guarantee like FDIC insurance. China’s banking system, likewise, does not enjoy an FDIC-level degree of consumer protection.

When you buy a jumbo CD, you want a sure thing.

American banks, or at least banks that abide by America’s myriad rules and regulations, remain, for the moment, the best place for that.

As expected, October’s inflation number represents something of a turning point for the inflation environment. Depositors now need to watch closely to see how savings account rates, money market rates, and CD rates respond.

The Consumer Price Index (CPI) for October of 2009 increased by 0.3%. That’s a fairly normal monthly increase for inflation, but it is in sharp contrast to October of last year, when the CPI declined by 0.8%.

The change in CPI for the twelve months ending October of 2009 is still negative, at -0.2%. Still, this is milder than the year-over-year deflation rates we’ve seen for much of this year. Significantly, CPI declined nearly 2.5% in just the last two months of 2008. Assuming this won’t be repeated in 2009 – and considering the improving state of the economy now, and the crumbling state of it last year, this is a more than fair assumption — we can expect to see inflation re-established by the end of this year.

This is significant for bank rates because up until this point, low bank rates could be justified by the deflationary environment. Factoring in deflation, even bank rates in the 1% to 2% range represented a better deal to depositors than it appeared. Now that deflation is quickly reverting to inflation, this will no longer be the case.

This increases the importance of shopping actively and frequently for competitive bank rates. This is no longer a question of simply desiring a little extra yield. It will now become a fight to stay ahead of inflation.

Investopedia has a nice piece up right now about how to save a million dollars. Tips include:

– Stop spending on useless stuff.

– If you deserve a raise, make sure you get it.

– Don’t overpay your income taxes.

Money-Rates provides readers with the ability to quickly find the best CD rates, best savings account rates, best money market account rates, and best mortgage rates…and those savings add up, too.

More important than any particular trick of the trade, though, if your mission is to have and/or keep a large amount of money in your savings account, is the attitude you take towards saving money.

Refusal to pay unnecessary bank fees, for instance, is a sure sign of a millionaire saver’s mindset. Demanding that you get the best CD rates, rather than the second best, is another millionaire-istic life choice.

The list goes on, there are so many manifestations of wealth-minded thinking.

No doubt the most valuable thing for the determined saver to realize, then, is that good saving is the fruit of good thinking, of really committing at a deep level to wealth-minded thought processes.

People who make that first, fundamental choice frequently make other, also correct choices as they progress down the path.

The Consumer Price Index for October will be released this Wednesday, and it could mark the beginning of the end for the spate of deflation the U.S. has experienced for much of the past year. For bank rate watchers, wondering when savings account interest rates and CD rates will start to rise, inflation remains a key indicator.

Deflation is the one thing that has made the unusually low level of bank rates bearable. After all, a 1.5% interest rate with a -1.5% inflation rate represents a 3% return over inflation. That’s actually a better deal than depositors usually get under normal inflation conditions.

However, the next three inflation releases — figures for October, November, and December — are likely to show that conditions are changing. Last year, prices dropped sharply in those three months. The change in the Consumer Price Index was -0.8% in October of 2008, -1.7% in November of 2008, and -0.8% in December of 2008. It is unlikely that declines of that magnitude will be repeated in the last three months of this year. So, as the calendar rolls forward and those declines start to drop out of the year-over-year numbers, expect to see the twelve-month inflation numbers start to turn positive again.

This would represent something of a squeeze for depositors. Those already-low bank rates will be further eroded by inflation. In theory, inflation should eventually cause bank rates to rise, but with banking finances still somewhat fragile, it remains to be seen just how quickly banks will react to the changing inflation scenario. Chances are, the timing and degree of adjustment will vary greatly from bank to bank, so this will be a very important time to shop actively for bank rates.

Not sure if you’ve been following the latest bank hearings–there have been so many of them over the past year, who could begrudge you for missing out–but these bank hearings may be bigger than most.

The Senate is dicussing what to do about the “too big to fail” big banks and too big other companies that act like banks, such as insurance companies.

Apparently, if Bloomberg’s exclusive report is to be believed, the Senate may actually pass a law that results in the breaking up of several big banks.

John Reed, the former CEO who started Citigroup towards being too big to fail, has even apologized to Congress for using that strategy.

Could big banks such as Citigroup really be broken up?

Populist conspiracy theorists would suggest no, that the Wall Street types would never give up access to the savings accounts and CDs and money market accounts of millions of people.

But what if conservative investments such as savings accounts and CDs were, somehow, segregated by law from speculative investments such as, say, betting on the value of copper on November 13, 2009.

For that is, essentially, what modern giant banks do: use deposit accounts to fund other aspects of the operation.

Previously, circa September of 2008, this system worked fantastically, and it is even working not bad right now, if impressive bank earnings are to be believed.

Could this system, this idea that banks should not only hold money but actively invest it, actually be on the verge of being dismantled?

If so, is that a good thing?

Or will it simply mean that the real business of banking moves the rest of the way off-shore?