Personal Finance Blog By MoneyRates - July 2007

Weekly average of 30-year fixed rate mortgages over the last 3 years (source: www.hsh.com).



Today's sell-off in blue chips and the extended rally in Treasuries has potentially created another opportunity for variable-rate mortgage holders to convert to the fixed-rate variety. As can be seen by the graph above, mortgages rates below 6.00% are well in the past and we may not see those type of rates anytime soon. What we will see after today's market action is that any loan which is indexed to the prime rate will not have the drop in rates that the longer term fixed rates will. Converting to a fixed-rate mortgage is an economic decision based on the value of your house, the expected length of time you expect to stay in your house, your tax sitaution and other considerations, but if one is evaluated based on interest rates alone - the fixed rate mortgage just became that much more attractive today compared to the peril implicit with many variable-rate loans.

Transportation Alliance Bank (FDIC# 34781) headquartered out of Ogden, Utah has been quietly offering some of the best deposit rates in tehe country over the past year. The bank is a subsidairy of Flying J, Inc,the nation's leading provider of diesel fuel, and has a stable deposit base of 347 million. Online investors can open a CD account with $1,000, a Premium savings account for as little as $25, or a money market account for $25.

Current deposit rates:

Premium Savings Account, 5.25% APY
Money Market Account, 5.15% APY
1-year CD, 5.39% APY
2-year CD, 5.48% APY
3-year CD, 5.50% APY
4-year CD, 5.50% APY
5-year CD, 5.50% APY

More information is available from Transportation Alliance Bank's own web site here.

Checking account with annual percentage yields (APYs) of 6.00% or higher are very rare, but a few exist. Special terms or restrictions can apply for a rate this high so read the terms and restrictions closely before investing. All banks listed are FDIC-insured.

(1) Salem Five Bank (FDIC# 23296) located in Salem, Massachusetts is offering a 6.10% APY on their eOne checking account on their website.

*No monthly fee
*No minimum balance
*Free use of any ATM, anywhere, anytime*
*Free online bill payment
*Unlimited checking, debit card and ATM transactions
*One time $25 bonus when you enroll in direct deposit

Balance / APY
$0-$9,999 5.00%
$10,000-$24,999 5.10%
$25,000-$99,999 5.20%
$100,000-$999,999 6.10%
$1,000,000 or more 0.50%

(2) FirstBank with branches located in Kentucky and Tennessee is offering 6.17% on their FirstRewards checking account. The following information is posted on their website:

FirstRewards is an account that lets you earn sky high interest (currently, 6.17% annual percentage yield) on balances up to $25,000 (1.00% on balances above $25,000) and refunds all domestic ATM surcharges. The minimum opening balance is $0. Sky high Interest is earned by completing a few tasks between statements (from the 4th Wednesday of one month to the 4th Tuesday of the next). If you complete all of the tasks, you earn the sky high interest, it's that simple. In the event you do not complete the required tasks your account will earn .20% annual percentage yield. The tasks that will allow you to earn your accrued interest are: �� At least 10 check card transactions (excess transactions will not carry over to the next month and ATM transactions are excluded) �� Direct Deposit or at least One ACH Credit or Debit �� Access Online Banking (by any joint account holder) �� Receive Electronic Statements

(3) Everbank (FDIC#34775) offers their FreeNet checking account with an introductory 6.01% APY. After 90 days the rate falls to the following tiered rates:

$100,000 and Up 5.01% apy

$50,000 - $99,999 4.15% apy

$25,000 - $49,999 3.65% apy

$10,000 - $24,999 3.45% apy

$9,999 or less 3.41% apy

EverBank's site lists the following features of the FreeNet checking account:

Our Yield PledgeSM1, where we pledge your yield will be within the top 5% of competitive accounts available from leading banks.

Complimentary online account management with the EverBank Online Financial Center.

Optional Online Bill Pay2 with no fees when you maintain a minimum $1,500 balance in your FreeNet Checking Account ($4.95 monthly fee applies to balances below minimum).

Free unlimited check writing (we'll even send your first set of 50 checks free).

No EverBank ATM surcharge fees and we'll even reimburse you up to $6 per month in ATM fees charged by other financial institutions.

Corporate bond buyers began buying corporate bonds online in the late 1990s with online brokerage firms who offered up a grocery superstore of offerings with low commissions. Instead of relying on a broker or brokerage firm touting specific bonds and issues that their firm held in-house, individual investors had the option to use their online broker to research offerings and in theory receive better pricing. While certainly online purchasers of corporate bonds have been spared the sales pitch of their broker, we question the amount of money saved by buying online. A look at today's offerings on a major online brokerage firm's trading site revealed:

Bids to sell corporate bonds:

Toyota Motor Corp (Aaa/AAA)
Due 10-20-2009
priced to yield 5.44%

Proctor & Gamble (Aa3/AA-)
Due 9-15-2009
priced to yield 5.30%

Bankamerica Corp (Aa1/ AA)
Due 2-15-2009
priced to yield 5.41%

Bids to buy corporate bonds:

Goldman Sachs Group (Aa3/ AA-)
Due 1-15-2009
priced to yield 4.46%

Wells Fargo and Co. (Aa1/ AA+)
Due 4-1-2009
priced to yield 4.52%

General Electric Cap Corp (Aaa/ AAA)
Due 9-15-2009
priced to yield 4.61%

Taking a look at those bids leads us to conclude that the individual investor is paying a very nice spread to the online broker for trading in corporate bonds. In fact, we have to note that the spreads between bid and ask prices appear wider than those offered in brick-and-mortar brokerage firms. While part of the large spread is certainly the convenience of purchasing corporate bonds in smaller denominations, we still suspect that the online brokerages firms are making a tidy sum on the online trading of corporate bonds.

A rally in mid-term and longer-term U.S. Treasuries in July has dropped yields between 10 and 20 basis points on maturities from 2 years to 30 years.

Current US Treasury Yields vs Yields from last month:

3 Month 4.85% vs 4.63%
6 Month 4.84% vs 4.77%
2 Year 4.73% vs 4.87%
3 Year 4.72% vs 4.91%
5 Year 4.78% vs 4.96%
10 Year 4.90% vs 5.08%
30 Year 5.03% vs 5.20%

The spread between the 3-month and 30-year Treasury has narrowed from 57 basis points to 18 basis points meaning once against banks will feel the pressure on profits as their lending margins are decreased. Investors may see a decrease in the yields paid on bond funds, bank deposits, government agency securities where the maturity date or average maturity date of the underlying holdings is 2 years or more. Investments such as mutual fund money markets, bank money market accounts, commercial paper, and bond funds with an average maturity date of 2 years or less are not expected to drop rates/yields as quickly, if at all. Recent history has suggested that if the yield curve does invert, that a recession may not necessarily be right around the corner. The main concern for investors should be the continued effect on banks and the availability of safe income-producing investment with yields of 5% or higher.