Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, October 4, 1993 TAG: 9310040014
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Long
More certificates of deposit mature in October than in any other month. Bank Rate Monitor estimates that $110 billion in CDs will mature this month nationwide.
That means October is the time of decision for many people who've put their savings in CDs at banks or thrifts.
It was the confluence of two financial events which funneled cash into banks during October that make this month so notable.
One was the 1987 stock market crash, which pushed investors to turn to bank accounts where the principal is protected by federal deposit insurance.
The other was the 1981 introduction of the tax-free All-Saver certificate, which for a single year encouraged many people to deposit cash in banks. The money has revolved on that schedule ever since.
But now bank savings are drawing persistently low interest rates, meaning savers are asking what to do with the available money.
Do you reinvest at the bank when last week's local range for the yield on a six-month certificate was 2.67 to 4.04 percent? One-year CDs ranged from 3.09 to 4.34 percent. Several brokers and bankers offered alternatives for people seeking low risk but with a better return.
Suzn K. Head, assistant manager of the Roanoke branch of Dean Witter Reynolds Inc., said many of that company's customers are going into the North American Government Income Fund.
The fund currently pays 7 percent, and it's sold without a sales commission.
People who buy the fund receive monthly income checks, Head said, and they have an opportunity every 30 days to withdraw the money without penalty.
The downside is that it invests in government issues of Canada and Mexico, as well as the United States. Not that those are risky, but they are subject to swings in the currency exchange rates.
But she said the worst-case scenario is a drop of two percentage points, so earnings would be 5 percent, "which is better than anything else you can find."
Of course, it could swing the other way, so the best-case scenario is a return of 9 percent.
Haven R. Shuck Jr., vice president and manager of the Roanoke branch of PaineWebber Inc., said the key is stability of the principal vs. an acceptable rate of return.
He suggested several low-volatility investments with a return of about 5 percent.
One is a prime rate trust, which invests in commercial debt that moves with the prime rate.
Another, he said, is a mutual fund that puts its money in pools of adjustable-rate mortgages.
The third suggestion is a fund that invests in U.S. government securities. Shuck said foreign government funds carry a higher return, but are more volatile.
"Taxes are becoming a major problem, even for retired people," Shuck observed. He therefore recommended that people consider putting their money in tax-free trusts, bonds or mutual funds.
Depending on a person's age and ability to invest for the long term, Shuck suggested buying a deferred variable annuity.
Lewis Nelson, who heads consumer banking for NationsBank in Roanoke, said people must look at their own situations.
People who can hold on to their investment for a long time might consider a mutual fund, Nelson said. NationsBank, like many banks, offers its own in-house mutual funds, including taxable and tax-free funds. But he said people who want insurance and a reliable monthly check will probably buy another CD.
Nelson suggested staying short term and staggering maturities. That would mean splitting a large CD into several smaller ones, then investing some for three, six, nine and 12 months.
That method ensures that some money is maturing often so it can be reinvested more profitably when interest rates start to rise.
"Vary your maturity as well as your nest egg," Nelson advised.
Carol Jarratt, head of consumer banking in the Roanoke region for First Union (Dominion) Bank, said people must examine their own risk tolerance.
"Nothing is worth losing sleep over," Jarratt said of risky investments.
Most people who invest in CDs are uncomfortable in anything else, she said.
People who cannot afford to lose their principal should put the money back into CDs, Jarratt said.
But another possibility, Jarratt said, is to place the money in a bank-insured money market account, where it can be withdrawn any time if interest rates rise.
At a local range last week of 2.44 to 4.07 percent, money market accounts vary little from short-term CDs in terms of yield. Yet the money is more accessible.
Danny Pace, a vice president at Signet Bank, advised people to keep some of their money in cash regardless of the interest situation.
The rest might go into a tax-free mutual fund that invests in short-term bonds, Pace said. His bank offers a Virginia fund that is free of state tax as well.
Signet and Kemper both sell quality mutual funds of government issues, Pace said.
He advised people who are interested in stock to buy utility or blue-chip companies. But Pace believes investors should be in cash rather than stocks right now. "I think they'll be less expensive in a little while," he said of stocks.
Pace said his own money is in no-load funds composed of federal or state government bonds and sold by his bank. That course, he said, is "very conservative."
Ann Harrell, vice president at Crestar Bank, said the bank offers annuities and mutual funds as alternative products. The latter are handled by investment advisers.
Annuities are illiquid and thus a long-term investment, she said, but they are a way to secure steady retirement income.
Memo: ***CORRECTION***