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To lure savers' dollars, banks bring back bags of goodies

The toasters are back. So are the color televisions. And the clock radios. This year, they've been joined by personal computers and pianos. All these goodies mark the return of the gifts and gimmicks that are supposed to lure savers' dollars to certificates of deposit at banks and thrifts. Fall is traditionally the busiest season for CDs, and this year is no exception. This year, in fact, the stakes for banks are even higher as they try to keep the money that flew into CD havens after the stock market plunge of a year ago.

Now, with those CDs maturing, the banks are doing all they can to get people to roll their money over into new certificates instead of moving it back into the stock market, or a money-market mutual fund, or - most dreaded - to another bank.

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With all this going on, there's a new element in the savings picture this year that concerns many people: Even though they know that up to $100,000 of their money is federally insured, they are still concerned about safety.

``There are many Americans who don't want to put their funds in an institution where they might be concerned about safety,'' says Robert Heady, who keeps track of the highest-yielding certificates of deposit and money-market deposit accounts at federally insured banks and thrifts.

According to Mr. Heady's newsletter, 100 Highest Yields (PO Box 088888, North Palm Beach, FL 33408, $29 for eight issues), the best-paying CDs are currently found in the Northeast, especially the Boston area. That's a switch from just a few months ago, when the highest rates were found in Texas, where struggling financial institutions were trying to attract deposits to stay afloat. Now that many of those banks or thrifts have been closed or merged into larger institutions, those that remain aren't trying to lead the pack.

In the Northeast, the high rates are a result of fierce competition for high-income depositors and superior earnings at many banks. Around Boston, yields of 8 to 9 percent on 12-month CDs are available. For six-month certificates, the yields are only about a quarter of a point lower, or less. At Home Owners Federal Savings in Boston, for example, the yield on one-year CDs is 8.58 percent and 8.47 percent for six months, branch administrator Donald Matthews says.

Such an unusually narrow difference, or ``spread'' - combined with uncertainty over the near-term direction of interest rates - seems to argue for the six-month CD. Interest rates typically rise in the first year of a new presidential administration, and if that happens again next year, a six-month CD will let you move into a higher rate in May.

If rates fall or are essentially unchanged over that time, however, the six-month yield isn't so much less than the one-year return low as to cause too much regret.

Looking for the best yield also means looking into compounding. That's what happens when the bank figures out how much interest you've earned recently, adds it to the principal, and starts paying interest on the larger amount. Some banks don't do this at all, so you get ``straight interest.'' Others compound interest quarterly, monthly, weekly, or daily.

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For a while a few years ago, a few banks were touting ``constant compounding,'' but there is virtually no difference between this and daily compounding, so that this marketing gimmick isn't being used much anymore.

Lately, most banks seem to be compounding monthly, and the difference between this and daily compounding for the average saver ``is about enough to buy a steak dinner,'' says Warren Heller, research director of Veribanc Inc., a bank research firm in Woburn, Mass.

Veribanc uses data from federal regulators to evaluate the financial condition of banking institutions, something that more savers want to know about lately, Mr. Heller says. Its system of one to three rating stars is included in the 100 Highest Yields newsletter. It also produces two reports of varying detail, a $45 and a $20 version, that are available by writing Veribanc at PO Box 2963, Woburn, MA 01888.

The easiest way to compare yields is to ask the bank officer how much money you'll have when the CD matures. The answers may be particularly interesting if the bank is one of those giving away a TV or radio. You may find that the return from a giftless bank is enough to buy the TV yourself in six months and still come out ahead.

If you have a question that would make a good subject for this column, send it to Moneywise, The Christian Science Monitor, One Norway St., Boston, MA 02115. No personal replies can be given by mail or phone.

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