Chasing yield: GMAC Bank (3.75%) and Capital One Bank Online Savings (3.40%)

My Fidelity Money Market fund (SPRXX) is now yielding only 2.61%. The Fidelity Select Money Market fund (FSLXX) is yielding 2.63%. I can get 3.20% in my Sovereign Bank money market account, but I am not thrilled about keeping too much of my money at one bank, even though there is FDIC protection. According to Crane Data, GMAC Bank (yes, that GM) is offering 3.68% and Capital One Online Savings is offering 3.34% (Crane says 3.49%, but that has already changed), both with FDIC protection. I am in the process of opening accounts for both.

Sovereign Bank does offer a 3.75% APY money market account, but only at the $75,000 level. Also, if you open a new account, even $25,000 will now only get a yield of 3.00% APY.

Sure, GM is on shaky ground, but FDIC protection is a great firewall. Besides, I find it amusing that my "investment" in a GMAC Bank account is effectively a tiny contribution to helping to bail out GM while Congress fiddles around and Obama parades around trying to look presidential.

I am presently waiting for the verification deposits to go through to link the two new accounts back to my Fidelity brokerage account which is what I funnel most of my "banking" transactions through. I expect that next week I will sell my SPRXX, put a small amount of it into FSLXX as a reserve for transactions, and then put a larger share of the remainder in GMAC for the higher yield and the remainder in Capital One for some diversification. Also, I already have a Capital One Bank account (they used to be North Fork Bank here in New York) and the Capital One checking and online savings accounts are accessible from the same login with easy transfers, so I can access the Capital One Online Savings cash very quickly if I need to.

Once these accounts are set up, I'll move some of my Sovereign Bank cash to GMAC for that higher yield. Actually, some of that cash is only temporary until January 15, 2009 when I need to make my next quarterly IRS estimated tax payment.

Normally, I would strongly advise against both "chasing yield" and putting money into shaky institutions (GM and Capital One with its risky consumer credit cards), but in this case FDIC protection easily trumps those concerns and leaves me with less risk than keeping cash in Fidelity money market funds with their temporary U.S. Treasury guarantee that expires in less than a month. I still think that Fidelity is extremely safe, but they are simply no longer competitive for yields, even when risk-adjusted.

CDs are also available for even higher yields, but my income situation (part-time freelance in technology) is such that I am not able to forecast even six weeks or six months into the future, so I have no choice to keep my cash very liquid.

I had difficulty opening the GMAC account. I went through the full process and then finally the Web site told me to call Customer Service who informed me that they were unable to open an account for me because I had two bankruptcies on my credit record. Talk about the pot calling the kettle black! Geez... I am trying to GIVE money to them to hold! Duh! I informed her that I had only one backruptcy and that it had been discharged three years ago. But, they were nice (the rep had gone through bankruptcy herself) and said that they would transfer my "pending" request to the accounts department who would examine it more closely and "they will get back to you within 3-5 business days." They in fact called this morning and said that I was all set and gave me the new account number and set up for the account linking verification and initial funding.

I also had trouble opening the Capital One Online Savings account. It would not accept my Fidelity routing info. I called them and we finally decided that I needed to try a different account, so I ended up linking it to my Sovereign Bank checking account with no problem. Oddly, I was then able to log on and add the Fidelity account using a slightly different method, so maybe they have a bug there. The Sovereign Bank verification deposits already went through, so now I am waiting for the Fidelity verification deposits. I should now be able to transfer funds from Sovereign Bank, but I need a full $10,000 to get the 3.34% rate (3.40% APY.)

Also, I just got this email notice from Capital One:

Please be aware that the first deposit made into this account, and any deposits made in the 30 days following this first deposit, will be held for ten business days (available to you on the eleventh business day). After the first 30 days following initial account funding, funds deposited into your account will be held for five business days (available to you on the sixth business day).

That should not be a problem for me, but something to be aware of.

That notice also lists the account as "MMA Savings." SO, it is definitely a money market account.

-- Jack Krupansky