When All-Savers eggs hatch, what's the next nest?
One bank has put several of its people on overtime so they could call customers in the evening. Another one sent out Mailgrams. Another promises magazine subscriptions. And several others are giving out calculators, watches, toaster ovens, radios, and blankets.
This ammunition is being used by banks and savings-and-loans to lure depositors looking for places to put the money in their soon-to-expire All-Savers certificates. Since first being offered in October of last year, All-Savers have brought banks and S&Ls more than $50 billion. That was far less than many experts predicted, and much of that money was simply shifted from one account to another. But the banking industry wants to keep as much of it as it can.
The test of how much it can keep is coming this month, as some $33 billion worth of All-Savers certificates comes due, and customers must decide where to put their money. If they do nothing, the money - which may have been earning more than 12 percent tax-free interest for the past year - will revert to a simple, taxable passbook rate of 51/2 percent.
Designed as a way to help the banking industry compete with money market funds, which were then paying 15 to 17 percent interest, All-Savers certificates offered up to $1,000 tax-free interest to single taxpayers and $2,000 for people filing joint returns. At 12 percent, this meant a couple could deposit nearly $ 17,000, earn high interest, and not pay taxes on it.
As the year went on, however, interest rates dropped and All-Savers, which pay 70 percent of the yield of one-year US Treasury bills, lost their luster. And Congress, by not renewing the All-Savers program, ensured that customers would have to look for other alternatives.
If you are planning to pull out, however, you should make sure you've earned the maximum $1,000 or $2,000 tax-free interest. This is money you will never have to pay taxes on, so you might consider buying as much in new All-Savers as it takes to reach this level, or as close to it as you can afford.
After that, do not expect to get the good deal you had with All-Savers. The combination of high yields, tax-free interest, and federal deposit insurance is just not being matched by anything else on the market, although a number of products come fairly close. They make it worth taking the time to examine all options before deciding which one is best for you.
There is still time - until Dec. 31 - to purchase a new All-Savers certificate. You can either roll an expiring one into a new one-year certificate or open a new All-Savers account. But the current yield of only 7.48 percent may not be attractive enough to keep you in the program.
If you want to keep the tax-free habit, the choices include tax-free municipal bonds, municipal bond mutual funds, and tax-deferred annuities. While bonds carry some market risk, they are exempt from federal taxes as well as taxes of the state or locality issuing them, and their interest is fully competitive with current All-Savers rates. Depending on their maturities, tax-free bonds are paying from 8 percent to more than 12 percent.
Tax-deferred annuities, available through brokerage houses, are packaged by mutual funds and insurance companies and pay a guaranteed yield in the first year and a rate tied to the performance of the portfolio after that. Recently, the Internal Revenue Service ruled that withdrawals from these accounts carry the same penalties as those on individual retirement accounts (IRAs), so these should be considered a longer-term investment.
Many people may not have reached their maximum contributions ($2,000, or $2, 250 for a spousal account) for their IRAs. If not, part of the All-Savers money would be well spent here. You have until April 15 of next year to open an IRA for 1982 or make contributions to it. An additional $2,000 could be put aside until January for opening a 1983 IRA. In both cases, the money would be used for an IRA instead of buying additional All-Savers certificates.
If you prefer to stay with the bank and its insured deposits, several time certificates are available. Three of the most common are a 91-day certificate, with a $7,500 minimum deposit and a current maximum rate of 8.102 percent; a six-month certificate with a minimum deposit of $10,000 and a rate of 9.643 percent; and 21/2-year certificates, which generally have a $500 minimum and an 11.8 percent rate.
For competitive current yields and easy access to your money, there are always the money market funds, both taxable and tax-free. The taxable funds, according to Donoghue's seven-day money fund average, are paying an average yield of 9.46 percent; the tax-free funds are paying 6.08 percent.
If you would like a question considered for publication in this column, please send it to Moneywise, The Christian Science Monitor, One Norway Street, Boston, Mass. 02115. No personal replies can be given by mail or phone. References to investments are not an endorsement or recommendation by this newspaper.