Monthly Archives: April 2013

Fraudulent Orders from Nigeria | Nigerian scams preying on businessmen

Nigerian scams are wide and varied. The most common is the email where you are promised vast sums of money by an heir or government official in return for your personal information and a bank account in which to house it. However it does not stop there.

I recently came across a posting where a businessman received a large order for hubcaps from Nigeria. The Nigerian customer asked him to split the amount on two credit cards. One part of the order for over $1000 was charged and authorized and the hubcaps were shipped. Before the second part of the order could be shipped, the businessman got a call from a Baptist Churchasking why he had charged $1000 to the church credit card. He was lucky that he only lost $1000. In fact he had done business with the Nigerians before to the tune of $200. Most likely some other person had been fleeced of the $200 and did not notice the charge on his credit card statement.

It is best to avoid orders from countries like Nigeria, Ghana, Lagos. Even Indonesiaand Romaniaare high on the list of countries from which fraudulent orders are placed. Even if your customer from one of these countries wishes to wire transfer the money, you may still not be safe since wire transfers can also be revoked.

Municipal bonds | What are municipal bonds

Municipal bonds are issued by any form of goverment agency that is lower than state level for e.g. cities and counties. The primary attraction of municipal bonds is that the interest generated is generally exempt from federal and state taxes. To compensate for this, the interest paid is generally lower than what you would receive from other investment vehicles. Sometimes however municipal bonds may not be tax exempt.Municipal bonds are generally used by local goverment entities to raise funds for projects and the bond terms can be up to 40 years. Municipal bonds can be purchased either directly from the issuer (primary market) or on the secondary market.

Municipal bonds were first issued in the US in the early 1800s when rapid city growth dictated the need for local governments to start financing their debt.
Municipal bonds can be general obligation bonds where the principal and interest are secured by the issuing government agencies taxation power. Revenue bonds on the other hand are those where the principal and interest are secured by revenues from special projects being financed by these bonds. This could be tolls to build roads & bridges or other public projects.

Laddered CDs | Laddering Certificates of Deposit

Laddering certificates of deposit refers to buying certificates of deposit for different terms. For e.g. if you have $100,000, instead of putting the entire amount in 1 certificate of deposit for say 5 years, you should put 10,000 in a 1 year CD, another 10,000 in a 2 year CD and so on. You can also put amounts for terms less than a year. Laddering CDs makes your money more liquid since your entire amount is not tied up for 5 years and also gives you a better return on investment. Banks generally give higher rates of interest for longer terms. As soon as a CD matures after 1 year you would re-invest it for 5 years for the higher interest rate.
You need to be on top of maturity dates. When a CD matures, there is generally a 7-10 day grace period. During this time, you can renew it, add funds to it or close it. Some banks like Ally bank give a reward of 0.25% for renewing a CD. This is a great way to get a better rate. In addition if you were to add funds during this time, the new funds also get the higher rate.

Certificates of Deposit – Non-traditional CDs

Apart from the traditional certificates of deposit discussed in my earlier posts there are other types of CDs as well.

Liquid Certificates of Deposit – These allow you withdraw from your certificate of deposit at any time (generally after 7 days as mandated by the government). However you will get a much lower rate.

Bump-Up Certificates of Deposit – These allow you to ask your bank to raise the interest after a certain period. They work well in a period of rising interest rates however the downside is that you will get a much lower rate to start with…and it may be a while before your bank issues a new higher rate that you can bump it up to.

Callable Certificates of Deposit – In a period of falling interest rates, the bank may call your CD after a certain period. So if you purchased your CD for 6% and the rate falls to 5% after 1 year, the bank can call it (retire it) and re-issue the CD for 5%. You would get a higher interest to begin with to make up for the risk of the CD getting called.

Zero-coupon certificates of deposit – Here you would buy the CD at a deep discount to get a par value at the end of the term. So you could purchase a $50,000 CD for $25,000 for a period of 10 years. You would not get any interest payments in the meantime.

Certificates of Deposit – Different Types of CDs – Traditional CDs

Certificates of Deposit come in various shapes, sizes and flavors.
Typically banks offer certificates of deposit based on
1. Length of time
2. Minimum amount of deposit
3. Interest rate

Generally the greater the length of time, the higher the deposit. This is based on the premise that you are willing to forgo taking out your money and are therefore taking the risk of not getting a higher rate if the markets go up. However the rate gets capped and often you will find that you are getting the same rate for a 18 month CD as for a 60 month CD. This is because the banks are also taking the risk of locking in rates when they could go down further in the future.

As stated in my previous post, it is important to shop around. The traditional CD is where you deposit your money for a fixed amount of time and then cash it out or roll it over for another term. If you wish to withdraw your CD amount before the expiry of the term the bank will impose penalties – which is generally loss of interest.

There are various other types of Certificates of Deposit as well:
Callable CDs
Bump-up CDs
Zero Coupon CDs
Withdrawable / liquid CDs

Certificates of Deposit | CDs – What you need to know about them

Many people look at a CD as a sort of savings where you park your money and then forget about it until your bank reminds you that it is time to renew. That is all very well and good. But certificates of deposit can form a very significant part of your total investments especially given the hits that the stock market has taken. With the current steady fall in bank interest rates it has become even more important to keep a close eye on your bank deposits especially time deposits.

Before opening or renewing an existing CD, you absolutely must research current interest rates. A very good resource and starting point is This is an excellent website that gives you nationwide rates for certificates of deposit. You can also select by state and duration (number of months you want to open the CD for).

Generally the highest rates are given by online banks. However you have to be comfortable with funding and completing all transactions online with no human contact. I have found that this is generally tough to swallow for many people when it comes to large sums of money.

If online banking is not for you, you may find that your own bank or another local bank is also giving good rates. Ask your own bank if they intend to have a better rate soon. You may find rates advertized in your local newspaper when a promotion is being run. Take advantage as these are generally for a short period of time. Banks give different interest rates in different markets. Many a time, promotions are run to attract “new money”. Basically even if you are an existing customer, you will get a promotional rate if you open a Certificate of Deposit with money you bring in from elsewhere.

If your CD is up for renewal and you need to re-invest the funds, the easiest option is to stick with your current bank. However your bank may not always have the best rates. You definitely should shop around especially since your money is going to be tied up for a while and you need to maximize your income. An important point to note is that you only have a 7 day window after your CD matures within which to close it. If you miss the 7-day period, your CD may automatically get re-invested at the current rates which are generally lower.

Once you’ve established where you want to open a CD, you now need to decide what kind of Certificate of Deposit is good for you. There’s all kinds of CDs nowadays and knowing your options will help you make a better investment decision. That will be the topic of my next blog post…so tune in.

The case for credit cards

I once hired a company to install hurricane shutters in my condominium unit. A sales rep came to my house, I selected a color, quality and we agreed on a time of completion. I had to pay 50% as an advance down payment which was approx $1500. I paid it with a credit card. Before work could begin, they needed to get approved by the condo association – basically provide proof that they were licensed and insured which should not be a big deal. However this is where the fun started.

Repeated calls to the company could not elicit this simple documentation. 6 weeks went by and it was getting impossible to get a hold of anyone. Nobody responded to calls…not even messages left on the owner’s cell phone. Finally I decided I had had enough. I placed a call to my credit card company and explained the situation. The item was put into dispute, I filled out some forms detailing the company’s lack of response. The dispute was decided in my favor and I got my entire $1500 back.

The moral of the story is use credit cards wisely and you may thank your lucky stars. I use credit cards all the time – not only do I not have to carry cash and heft change but I also get cash back on many purchases (Credit cards such as Citibank and Discover offer 1-5% of cash back on selected purchases. Bank of America was recently running a promotion whereby you get 20% back if you put your cash back into a Bank of America checking account). In addition should you lose your credit card, you will be completely covered for the loss in case someone should steal it….can’t say that if you lost actual cash.