The interest rates currently by FORD/GMAC Money Market Accounts are incredible.
I realize these accounts are not FDIC insured. Has anyone ever had a negative experience with demand notes or these automobile co. money market accounts?
Seems like a great alternative to the regular checking/savings rates:
For Week Beginning March 03, 2003 Ford Money Market Account $0.00 to $14,999 3.00%, YIELD 3.04% $15,000 to $49,999 3.20%, YIELD 3.25% $50,000 and Above 3.40%, YIELD 3.45%
http://www.fordfinancial.com/moneymarket/
What are the disadvantages to this type of investing?
You guys are the people to ask! I look forward to your replies.
S&P has a "BBB" rating, near the bottom of the investment grade scale, on both Ford's and GM's long-term debt, with a negative outlook on Ford. That means it is in danger of a drop to just above junk status. S&P has a stable outlook on GM.
It's not surprising for a company with this kind of credit rating/ outlook to pay a premium in order to borrom money.
Still the demand notes program seems pretty flexible with checkwriting ($250 min) and billpay. The GM program seems equally enticing: http://www.gmacfs.com/notes/demand/main.htm
I've had a GMAC Demand Note account for a couple years. It's great. I wish you could do transfers online but you can still do them over the phone. Also, you can do free wire transfers (not ACH) out of the account, to your designated bank. I think the minimum opening amount is $1000 and any checks have to be at least $250. The account is just like a bank checking account so you can tie it to direct deposits or bill paying. It's through Northern Trust Bank.
I would like to hear more input on these money market funds they seem safe. I know they are not insured. Looks like it is just a basic money market account that you can write checks out of but has better rate. Looks like ford has a better interest rate? Are there other large compines that offer this kind of account?
Yes, it looks like Ford is a little better if you have more than $15k. Less than that, they are equal, except Ford has more online capabilities. I am surprised that these don't get much press on this board, considerding how many posts about ING there are. These are better and basically the same thing. Although both of these have a $1000 minimum.
They are big companies who are on credit watch with the potential to be downgraded to junk; I think they will survive for a few years if not longer, but their pension plans could bankrupt them as almost happened with GM a few years back. Providian is another company which is effectively shut out of the normal debt markets and they are now advertising on the radio looking for retail investors to provide them with short term cash at attractive rates since the bond market shuns them.
<< I am surprised that these don't get much press on this board, considerding how many posts about ING there are. These are better and basically the same thing. >>
Except that ING is FDIC-insured while GM and Ford recently had their ratings cut by S&P.
How can you lose your money? If they do get down grade do you loss your money. I dont see GM or for going bankrupt any time soon. I know they are falling on hard times and they have under funded pensions funds but who know.
<< How can you lose your money? If they do get down graded do you loss your money. I dont see GM or for going bankrupt any time soon. I know they are falling on hard times and they have under funded pensions funds but who know. >>
No, you won't lose your money if they get downgraded. But remember, there was a time when the notion of Enron, Worldcom or United Airlines going bankrupt was considered ludicrous.
Since most people who invest in money-market funds are risk-averse (at least with that portion of their portfolio), utilizing a well-diversified fund from Vanguard or Fidelity or using a FDIC-insured account from ING makes prudent sense, in my opinion. However, it's a free country and everyone is free to chase yield if they choose.
This Ford fund is just like a bond fund. It's all dependent on the ability of the company to pay. This is a totally different financial asset class than a money market fund. You MUST understand this important distinction. Given the risk/reward ratio, 3.4% is a ridiculously low return for such a bond.
Ford's prospects are bleak. See today's New York Times article that highlights their dire situation.
Basically your money is at risk. The risk is not very high, but if you invest in these demand notes realize that you CAN lose all your money! You are getting about a 1% premium for this risk, wether it's worth it is up to your own risk tolerance. The extra return, however, is definately not free.
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