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

For example, Fidelity Investments is offering a six-month CD rate of 0.4 percent and 0.85 percent for a one-year CD. T. Rowe Price Investments offers a six-month CD for 0.5 percent and 0.95 percent for one-year CDs. Both those rates are for deposits of $1,000 or more.

Furthermore, many brokerage firms and national banks money markets are well below 1 percent. Money market rates at Morgan Stanley Smith Barney and Merrill Lynch are at less than 1 percent. Morgan Stanley Smith Barney recently quoted money market rates as low as 0.35 percent. Merrill Lynch is at 0.94 percent with a recent money market offering.

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

USAA Federal Savings Bank, a bank restricted to military families, also falls short of 2 percent on a one-year jumbo CD of $175,000 or more invested.

"There may be some banks that offer higher rates but none as consistent as what you might get shopping your local banks and credit unions," Ness says.

"Our competition is other small banks and credit unions," he adds. "People by nature like to deal with local community banks, and we don't want to compete (against larger banks) or advertise ourselves with higher rates. We only want to keep the money we have in town and gather local deposits."

Heather McDonold, a spokeswoman for T. Rowe Price Investments, conceded it may be tough to compete with "mom and pop" banks or credit unions on CDs or money market funds.

"We have a different business model of what we do than 'mom and pop' banks," McDonold says.

T. Rowe Price specializes in mutual funds and encourages investors to use company money managers, McDonold says. CDs are just one product among many offered by T. Rowe Price, she says.

Negotiating rates

Customers with an existing relationship to a local bank often can negotiate even better rates on an IRA, Ness says.

"It always pays to a have a standing bank relationship with your local bank," he says.

However, new customers who do their homework also can get a good deal.

For example, West One Bank, a small bank in Kalispell, Mont., with two branches, offers 2 percent for a one-year CD for a new account of $1,000 or more, with "negotiations open" for a higher rate, says Jo Ann Craver, an officer at West One Bank.

West One also offers money market accounts that pay 2.4 percent for IRAs only, keeping with the theory that longer-term deposits on retirement accounts earn a higher rate of return.

Ness encourages savers to call the small banks in their town and ask for rate quotes.

"We also look at the relationship people have with us and are ready to help those who have the 'set it and forget it' mentality for IRAs, normally longer-term money," Ness says.

Before choosing a bank, it's important to make sure you're comfortable with the rate and other particulars. Moving retirement money between institutions is not as easy as moving personal nonretirement assets.

The paperwork for moving any IRA money can be more complex, Ness says. For example, a custodian -- the institution holding your assets -- handles your IRA assets and is required to file a rollover tax Form 1099-R each time the assets are moved from one investment institution to another. Meanwhile, the receiving firm files a Form 5498, and you are required by the Internal Revenue Service to report the transaction on your taxes, according to IRS rules.

"To get something moved you have to fill out rollover paperwork regardless," Ness says. "You can't take possession of funds, so banks (or custodians) have to handle it. There's a little bit more involved in paperwork."

You can search for high-yield IRA CDs on Bankrate.com.

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