Saturday, December 10, 2005

DemandNotes @ 5.25% APY (But....)

I was giddy with excitement when LaLa showed me the 5.25% APY (as of November 28th) on her GMAC DemandNote statement. Yes. This *is* my life now...when an APY over 4% truly excites me.

GMAC DemandNotes are available to GM employees and their families. LaLa's father worked for GMAC and in LaLa's family getting a DemandNote account was just What One Did. A right of passage...a foregone conclusion. It must be opened with $1000 and added to with a minimum of $50. The minimum withdrawal is $250 and withdrawals are done via check (though I do believe they support ACH transfers now that it's all the rage).

Her DemandNote has been quite useful in her life. In fact, it's where we stuffed our money while saving for our house because it was our only savings vehicle and the interest rate seemed appealing....but what did *I* know? I didn't know a thing about savings accounts or interest rates, let alone APYs.

Fast forward to my 5.25% APY sponsored giddyness and add a curiousity for how they calculate their rate (all I found was a vague reference to "more than" some average money market statistic) and you can see how finding the following gem let the air out of my sails a bit:

It's unsecured debt. As in "non-FDIC insured". And it's apparently unsubordinated too. But I don't really know what that means in this context. I know this isn't normally a big deal - money market funds aren't insured either, right? But it's GM. They're not exactly a poster child for financial reliability right now. And folks are definitely wondering what will become of the DemandNote if things go further south for GM.

Right now I'm building our emergency cushion at EmigrantDirect though I expect to move it all to HSBC...both FDIC insured and paying a 4.0% APY. But 5.25% APY is juicy. Tasty. And I want some. Dare I risk it? Is it low risk? I'm just "the person"...how can I find information to judge how much (or little) of a risk it is to keep my safe and liquid funds there?

Anyone care to weigh in?

11 comments:

  1. The danger with Emigrant is that they make it so easy to withdraw the funds and invest them instead. ;)

    ReplyDelete
  2. hmm... that's 5.25% excited me as well. How often is that adjusted? Since it is unsecure and I don't exactly trust GM, I would personally go with a CD or I-bond. I don't think I'd loan money to GM at this point in time....

    ReplyDelete
  3. Just buy a Muni Demand Note they are paying 3% full tax-free with no risk why would you want a GM JUNK note?

    ReplyDelete
  4. you did not mention the term ,look at bankdeals.blogspot.com.I posted a comment there about 6% for 6 months available at chevy chase bank, there is a dcu 16 month 5%,i-bond is currently paying 6.73,but dont buy that as the inflation is low right now

    ReplyDelete
  5. Anonymous, there is no term. You have check writing privileges (min of $250) and can get at your money at any time. They also have ACH transfers I believe. Even though it's a "note" it functions more like a money market account.

    ReplyDelete
  6. tax-exempt MMF are paying 3% today and Muni Demand notes are paying 3.33%. Not sure why anyone would want to invest in GM unsecured debt now considering if GM files for BK you loose all your money. As of today it not a question if GM will file but just when.

    ReplyDelete
  7. I couldn't stomach the risk, I pulled my 100k out and put it into paypal and HSBC.

    ReplyDelete
  8. That's interesting...I see paypal as more risky than GMAC Demand Notes.

    ReplyDelete
  9. Why is Paypal more risky than Demandnotes? Is ebay more likely to go bankrupt than GM? What are some Muni funds that are paying above 3%?

    ReplyDelete
  10. I consider paypal "risky" because at any time they can freeze your funds upon a complaint from a buyer and even if that complaint is fraudulent it can take a while to get at your money.

    If you don't do ANY buying and selling then I think that point is moot, but for me it's not an option. I sweep my paypal account often just to be careful. I do this even though I have 100% feedback on ebay and I have never had a complaint because you just never know. I believe this happened to Jonathan at MyMoneyBlog.

    I don't really know anything about munis, just that I think I'd like to invest in Fidelity's Mass Muni fund (FDMMX) because I can take advantage of both federal and state tax advantages. Morningstar says the current yield is 4.15%

    ReplyDelete
  11. Hellooo? GM no longer owns GMAC. They spun it off quite a while back. I've had my savings in Demand Notes for years & have been very happy. Interest rate adjusts whenever they want & in the past 5 or 6 years I've been with them it's ranged from 4-6.5%. Nice. The only downfall is their customer service department... they're an absolute NIGHTMARE consistently, but once you get it set up the way you want it, it's maintenance free. That said, I pulled out 2 weeks ago. Too risy right now. Regardless of the health of GM, GMAC is struggling as all the lenders are. Hang tight & wait for things to turn back around.

    ReplyDelete

Related Posts Plugin for WordPress, Blogger...