What about a layaway plan for CD rates?
Walmart’s recent decision to bring back its layaway plan in time for the holidays got me thinking.
Would it be possible for banks and credit unions to offer their own layaway plans -- for certificates of deposit?
Here’s my problem: Between now and Dec. 31, I have 23 CDs maturing at 11 different banks.
And I’m sure CD rates have nowhere to go but down.
I’d feel a lot better (i.e., more in the holiday spirit) if there were some way for me to lock in -- today -- a rate based on the fact that I’ll be able to fully fund it two or three months down the road out of the proceeds of one of those maturing certificates.
Hence my "CD layaway plan."
Here’s how it would work.
Right now, I have a $100,000 CD maturing on Dec. 23 at California First National Bank.
Today’s 36-month rate at CalFirst is 1.30% APY. It’s 1.90% APY (for $25,000-plus) at Alliant Credit Union.
Under my layaway plan, which is loosely based on the Walmart model, I could apply for, and lock-in, a $100,000, 1.90% APY Alliant CD today by:
- Paying Alliant a $5 nonrefundable fee (what Walmart charges);
- Depositing $10,000 (10%) down (I have this in a money market account at Sallie Mae Bank);
- Delivering the $90,000 balance from the CalFirst certificate by Dec. 27, the first business day after maturity (CalFirst may charge $15 for a wire).
A pipe dream, you say?
But many institutions already lock in rates for short periods to allow time for funds to arrive (for example, Ally gives you 10 days; Bank of Internet, 10 business days).
Is 90 days such a stretch -- particularly where the depositor puts 10% down?
Besides, this is nothing more than what the geniuses manning the derivatives desks on Wall Street (the folks the Democrats call "fat cats," and the Republicans call "job creators") would identify as a "forward" or a "futures" contract -- or maybe even a "swap."
Come to think of it, perhaps instead of calling my proposal by the mundane name "CD layaway plan," I should give it some exotic name, with a nifty acronym, like "Time Deposit-Squared" (TDS) or "CD Long" (CDL).
This, together with the $5 fee, should ensure that all the big banks would back the idea.
It would be American "financial innovation" at its best.