Saving in a Low-yield World
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Want higher IRA yield? Stay local

Investors fed up with low returns on interest-bearing investments in their retirement accounts may find higher rates at hometown banks and credit unions.

In some cases, local institutions offer IRA interest-bearing investments that pay out two to three times higher returns than national brokerage and investment firms.

For example, Whitefish Credit Union Association in Whitefish, Mont., pays an impressive 3.65 percent money market rate on IRAs today, guaranteed for six months. By contrast, a recent weekly national survey of large banks and thrifts conducted showed the average yield on one-year CDs to be a mere 1.01 percent.

Savers who value safety above all else may be perfect candidates for interest-bearing investments in their retirement accounts, says Jim Ness, vice president of operations for Glacier Bank, a Kalispell, Mont.-based bank with branches serving six states.

"What it all boils down to is some people don't want to lose principal and take on the stock market risk of losing their principal," Ness says.

Some investors lately have spurned traditional IRA investments, such as mutual funds or individual stocks, because they view them as too risky. Local banks and credit unions are attracting these customers by offering highly competitive rates on CDs or money market accounts in IRAs.

It doesn't hurt that CDs and money market accounts are FDIC-insured at banks and credit unions for up to $250,000 per account.

"When people don't want to lose a cent in their IRA, that's what we specialize in," Ness says.

Eligibility rules

To be eligible for the higher rates, savers may have to meet certain qualifications. For example, at Whitefish Credit Union Association, purchasers must be a member of the credit union for a least one year with an individual or joint account.

The rate is based on the credit union's normal passbook rate of 2.15 percent to open an account. The credit union adds an extra 1.5 percent to lure IRA deposits "based on our original theory that IRA money would stay around longer," says Charles Abell, who retired as chief executive officer of the credit union earlier this month.

Abell is referring to the fact that federal rules make it less likely that depositors will withdraw money from IRA accounts before a certain age.

For example, the penalty for withdrawing money from an IRA before age 59½ is 10 percent of the amount withdrawn, unless the money is used for qualified school costs or a first-time home purchase. So, a 50-year-old normally can be expected to leave IRA money at a local bank or credit union for almost 10 years.

The rate at Whitefish Credit Union changes every six months for IRA accounts. You must also keep at least 10 percent of your IRA assets at the credit union to keep that higher rate.

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"We rank first -- or in the top 10 -- nationwide for our rates," Abell says.

Bigger, but lower

Meanwhile, rates often are more meager at bigger institutions.

Some investment houses, brokerage firms and national banks are paying nominal rates at about 1 percent or less for a six-month or one-year CD.

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