EverBank Review: Online Bank For High Yield Investment Accounts

EverBank has some great savings products. Check out their unique offerings in the savings account space.

If you’re on the lookout for innovative bank products (like I am) then you may want to turn your attention to EverBank. I’ve been keeping up with them because they are one of the few resources I’ve found that offered interesting financial products that I couldn’t find anywhere else. Plus, they handily address a lot of my personal investment requirements.

Here’s the quick scoop. While EverBank provides many financial services from mortgage banking to investing, they’re actually quite well known for their online banking and consumer products, from high yield checking and high interest savings accounts to money market accounts and CDs that are denominated in both U.S. and foreign currencies. Considered as one of the largest online banks in the U.S., EverBank has received the Forbes “Best of The Web” recognition from 2000 to 2005.

Here’s a quick summary of their product offerings, which are mostly safe savings accounts with a few intriguing exceptions:

For a no monthly fee high interest checking account, you can take a look at EverBank’s Yield Pledge Checking Account. This account was formerly known as the FreeNet Checking Account but has since been renamed. They do require an opening minimum balance of $1,500, but if you can afford it, you may want to check out this account for the following features:

Latest Promo: Receive $60 for opening a checking account. Offer expires November 30, 2011.The yield promises to be in the “top 5% of competitive accounts” across leading banks (as per their “yield pledge”. Currently you’ll make 8X more than the national average with this account.There’s no minimum balance required to receive interest.There are NO monthly charges and NO debit card fees.You will be reimbursed for all ATM fees, regardless of which ATM you decide to use.They are of course, covered by the FDIC.Online bill pay is free for accounts that contain at least $5K as an average daily balance. Also, online and mobile banking is free.They’ll pay you $50 if you decide to take your business elsewhere ($50 satisfaction guarantee!). Numerous awards including Money Magazine’s “Best of Breed” and Kiplinger’s “Best Checking Account”.Open an EverBank Yield Pledge Checking Account and receive $60.

The EverBank Yield Pledge CD is described as a high yielding certificate of deposit (relatively speaking) that is covered by EverBank’s “yield pledge”, which simply means that the bank ensures that their yields will always be at the top 5% of competitive accounts. Their rates range from 0.35% APY for a 3 month CD all the way to 1.90% APY for a 5 year CD. Accounts are FDIC insured. The only downside is that they require a minimum opening balance of $1,500. Some other great features? You can opt for automatic rollovers or ask to be notified by a bank representative when your CD is about to mature (notifications occur 20 days prior to maturity).

Here’s where to sign up for an EverBank Yield Pledge CD.

Another FDIC insured product, the EverBank Yield Pledge Money Market Account has a .76% APY. Again, they require an opening balance of at least $1,500. Also, it’s only free if you maintain at least $5,000 in your account, otherwise it’ll cost you $8.95 a month to keep your money here. Given the relatively lower savings rates at this time, you may get more mileage from the Yield Pledge Checking account, which has some pretty attractive features that are focused on lowering costs instead.

Here’s where to find out more about the EverBank Yield Pledge Money Market Account.
Note: Following are EverBank’s unique foreign CDs. However, note that they are not available at this time and are only offered on occasion.

Okay now we come to the fun part! This is what I particularly appreciate about EverBank — they have a series of “WorldCurrency” products which I look upon as great diversifiers for any investment portfolio. Here’s what I mean: for foreign exposure, most of us own foreign equity mutual funds. But if you’re nervous about the volatility that stocks and currency exchange rates bring, then here’s the perfect product for you: the EverBank MarketSafe CD. What’s interesting is that this offering only comes around once in a while based on current market conditions, so you’ll need to apply for an account prior to a particular deadline (the last application deadline was on October 8, 2009) in order to participate in it.

The MarketSafe BRIC CD has a term of 3 years and gives you exposure to the 4 BRIC currencies: the Brazilian real, Russian ruble, Indian rupee and Chinese renminbi. Basically, you’ll make money if the BRIC currencies gain against the dollar upon the CD’s maturity at the end of its 3 year term. If your investment does not increase or goes down in value, you won’t be losing any money. In this case, you’ll get 100% of your principal back after the 3 years is up. So there’s no downside (except the potential loss of interest over 3 years)! It requires a reasonable $1,500 minimum deposit.

It’s something I’m seriously contemplating on as a great way to diversify my international holdings. You’ll need to check up on it now if you want to be part of their next offering.

If you’re unable to invest in the BRIC CD (because it’s unavailable), then there are still other ways to invest globally with EverBank. They have a ton of other foreign currency based CDs but these carry with them the currency risk inherent in international investments. So it’s safe to say that they’re only FDIC insured for bank insolvency, not for fluctuations in the value of your investment. If you’re interested in exploring diversification through foreign currencies, then you can check out the following products:

For more on foreign currency investments and research, check out this link!

All these products are available through both regular and IRA accounts. There are a whole slew of investment and savings options that are available with EverBank, many of which are not readily available through other banks. If you are looking for no-risk accounts, you can check out their Yield Pledge products. On the other hand, if you’re more interested in diversified foreign CDs or precious metals investments (which aren’t considered staples in most banks), then do take a look at EverBank’s commodity baskets (e.g. WorldCurrency CD baskets and Metals Select Gold and Silver accounts). You can also open an EverTrade brokerage account to trade traditional equity and bond securities.

Open an IRA account with EverBank here.
Created September 3, 2009. Updated October 27, 2011. Copyright © 2011 The Digerati Life. All Rights Reserved.

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Saving Pennies or Dollars? Investment Fees

Saving Pennies or Dollars is a new semi-regular series on The Simple Dollar, inspired by a great discussion on The Simple Dollar’s Facebook page concerning frugal tactics that might not really save that much money. I’m going to take some of the scenarios described by the readers there and try to break down the numbers to see if the savings is really worth the time invested.

Kelly writes in: My husband I have lots of hobbies/interests and finances do not excite either of us so we are not savvy. We are great savers but don’t really know what to do with the money. We have our retirement accounts through work (Fidelity) and an emergency fund in a high interest checking account. In addition we had about $60,000.00 (that we don’t have plans for) in Vanguard money market funds until the rates dropped and we were not earning any interest. Because there is not a Vanguard office near our home (and we did not know where to put the money) we met with an advisor at Fidelity. We moved the money into stock market accounts and have made a significant amount of money. I have heard and read that Fidelity has higher fees than say, Vanguard, but if we can meet with an advisor yearly and are making significant money on this money do you think it is worth it? Or, is there a way to figure out what funds to put the money in at Vanguard? Are we talking about saving pennies or dollars?

In this instance, you’re comparing apples to oranges. Comparing a Vanguard money market account to a Fidelity stock fund isn’t even close to a realistic comparison. Money market accounts are typically invested in things that would be considered ultraconservative, like U.S. treasury notes. On the other hand, stock funds are invested in the stocks of companies and, by their very nature, are much more volatile, with big gains and big losses within the realm of possibility.

The only way to really gauge the impact of investment fees is to compare identical investments from two separate investment houses, which is extremely difficult since it’s rare for two investment houses to have identical offerings. Even if you compare very similar investments, like the Vanguard 500 and the Spartan 500, it’s still not an exact comparison because of small variations between the funds.

For example, with the funds above, the basic level investor shares of the Vanguard 500 has an expense ratio of 0.17%, with Admiral shares (with a minimum investment of $10,000 required) havving an expense ratio of 0.06%. The Spartan 500, offered by Fidelity, is somewhere in the middle at 0.10% (but has a $10,000 minimum investment). This gives an overall nod to Vanguard based solely on the expense ratios.

How much does that save, though? Let’s say you invested $10,000 in each of those two funds. An expense ratio means that, in a given year, that percentage of the assets is being used to maintain the fund, employ the people running it, and so on.

So, at the end of 2009, a fund with a 0.06% expense ratio might have a face value of $10,000. Another fund with an expense ratio of 0.10% also has a face value of $10,000.

During the year 2010, the assets in those funds gain, let’s say, 2%. At the end of that year, the 0.06% expense ratio fund would have a balance somewhere close to $10,193.88 (depending, of course, when the expenses were taken out) and the 0.10% expense ratio fund would have a balance close to $10,189.80. This amounts to $4.08.

In other words, when the difference in expense ratios is small and your investment amount is relatively small, the amount of money you’re saving and losing is small.

However, let’s say you’re investing $1,000,000. The amount of money due to the difference in expense ratios is much closer to $408, and suddenly you’re talking about significant money.

Even with the $60,000 mentioned in the question, you’re talking about an approximate annual difference of $24.08, which may be less than the value they get from talking face-to-face with an advisor.

What about the difference in expense ratios? Let’s say that one fund has an expense ratio of 0.06% and the other has a ratio of 0.60%. You’re talking about a rough difference of $55.08 per year on an investment of $10,000, and $5,508 per year on an investment of $1,000,000. That’s a big difference.

Again, these types of comparisons only mean anything if you’re comparing very similar investments. The greater the difference between the investments, the less it means in the sense of a direct comparison.

As a rule of thumb, I usually subtract the expense ratio from the annual return numbers on any investment I look at. Although this isn’t anything like an exact comparison, it does give me an idea of how much I’m going to be hamstrung by their expense ratio over the years.

Usually, this leads me to investments with very low ratios. Usually, I find these types of investments at Vanguard or Fidelity, the two places you mention.

It is important to note that you shouldn’t just chase low expense ratios when you’re investing. Putting everything in the investment with the lowest expense ratio isn’t well diversified and will lose you money.

To put it simply, when you’re investing small amounts and the difference between the expenses in comparable investments is small, you’re talking about pennies (or a few dollars). But if either of those factors grows large, you’re quickly talking about dollars – and often lots of dollars.

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Higher Investment Risk and Expected Return

I’m currently reading the book The Most Important Thing: Uncommon Sense for the Thoughtful Investor by Howard Marks. Inside, he talks a lot about risk. Most people seems to grasp the idea that riskier investments offer the prospect of higher returns. Stocks are expected to offer higher returns than cash or bonds. Bonds are considered less risky, and thus return less. However, Marks states that too many people have a simplistic risk/return relationship in their heads:

Source: Table 5.1, The Most Important Thing

However, there is no requirement that riskier investments will actually provide those higher returns. It’s only the average expected returns that are higher, but since the uncertainty is also higher. Put another way, the distribution of potential returns is wider. To be more precise, he shares this risk/expected return chart instead:

Source: Table 5.2, The Most Important Thing

When I started investing several years ago, I remember reading several personal finance articles that responded to questions from older investors that had some catching up to do with their nest eggs. The solution was simple – own more stocks! You’ll need the extra return, they reasoned. That’s exactly the wrong way to think. There is no easy shortcut to saving more.

Find more in Investing | 10/5/11, 5:15am | Trackback

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How Liquid Is Your Portfolio? Analyzing Investment Liquidity

How important is it to consider liquidity when you build your stock portfolio?

What I find particularly fascinating about the financial industry is that you will find many more gray areas than you will actual black and white science. This leads to an ongoing debate over how far the performance of stock market research has come. For instance, Roger Ibbotson discovered another dimension in the landscape of investment performance analysis: liquidity. Though this discovery was published first in 2007, I was just recently reminded of it after hearing his latest speech on the topic. From what I gather, this newest concept of portfolio construction (which would include liquidity as a consideration) shows some promise.

Image from Randy OHC @ Flickr

Most of us have learned the different characteristics of small-cap, mid-cap, and large-cap stocks. And, many of us have also heard about the ongoing debate about growth vs. value stocks. When people talk about “premiums,” they are referring to certain asset classes that pay a premium over others.

For instance, if you look at things historically, small-cap stocks have paid a premium or performed better than mid- or large-cap stocks. Some studies show that, much like small-cap stocks, value stocks outperform growth stocks in the end. However, Ibbotson touts that investment liquidity adds yet another dimension for us to consider. Though intuitively I knew that liquidity (defined as how quickly and easily investments can be converted into cash) played a role, I never really considered its actual numbers and performance.

Ibbotson researched 3,500 U.S. stocks (by quartile) that were rebalanced annually from 1972 to 2009. Based on the liquidity and size of the stocks, he analyzed their performance through almost four decades and came to some very interesting conclusions. Small-cap stocks — found to be highly liquid — performed the poorest. They returned only 5.9% per year throughout the research period. Ibbotson explains that these small-cap stocks have not been inflated adequately. On the other hand, throughout the research period, illiquid small-cap equities created the best returns, generating an incredible 17.87% yearly return over that same timeframe. It’s likely that these returns are from smaller companies that have gone unnoticed and that invite very little concern or exchange activity.

Even though we also find this tendency with large-company stocks, illiquid large-company stocks provide a much smaller premium. Large companies returned less than ten percent for their most liquid assets, while companies logged a little over twelve percent in yearly gains — through almost a forty-year-period — for their least liquid stocks. A gain of nearly three additional percentage points is huge, in my book.

Growth shares that are highly liquid — you know, those that most people are familiar with and most portfolio managers own themselves — did pretty badly, returning only a little over three percent per year throughout almost four decades. There are reasons people lose money when they invest, and it may be worthwhile knowing how trading stocks can make you poor. Now during this same forty-year research period, companies with the smallest liquidity rate provided their investors with almost twenty-one percent annually in gains!

So, what’s my take? While this has not been a criterion in my tactical portfolio construction, I think that it only makes sense to be aware of the part that liquidity plays, and we’ll just have to wait and see how future research pans out. Most of my portfolios are very liquid, and I think we need to keep in mind that illiquidity also has its risks. However, at the end of the day, I always come back to a balanced portfolio using effective asset allocation strategies.

Even though research shows that there may be some outperformance in small-cap and value stocks, I would not necessarily recommend overweighing in these areas. It is very important to maintain an even mixture of growth vs. value stocks as well as small vs. mid- and large-cap stocks. And I suspect the same is true of liquidity. We would not necessarily want to overweigh our portfolios with all illiquid stocks. Rather, a balance of both liquid and illiquid investments is prudent. My reasons are twofold: first, oftentimes you simply cannot start overweighing an investment style or area without incurring more risk; and secondly, just as is the case with any historical investment performance, it’s just that — historical (remember that past performance isn’t indicative of future results).

Will this hold true with the markets as we move forward? And what is the required economic climate to support this hypothesis? Of course, you may consider me to be a more conservative or prudent investor, as my contention is that we should aim for the risk-adjusted returns we “need” rather than the best absolute returns possible.

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Is Real Estate a Good Investment?

Is Real Estate a Good Investment? | Wise Bread AboutContactAdvertise Hot Story Homemade Gluten-Free Trail Mix Bars for About 30 Cents Each Personal FinanceBankingCars and TransportationCredit CardsDebt ManagementFinancial NewsInsuranceInvestmentsReal Estate and HousingRetirementTaxesMore in Personal FinanceFrugal LivingBudgetingDIYEntertainmentFood and DrinkGreen LivingHealth and BeautyHomeLifestyleShoppingStyleTravelMore in Frugal LivingCareerCareer BuildingEducation & TrainingEntrepreneurshipExtra IncomeJob HuntingMore in Career & IncomeLife HacksConsumer AffairsFamilyGeneral TipsOrganizationPersonal DevelopmentProductivityTechnologyMore in Life HacksBest DealsDaily DealsGiveawaysSmall BusinessForumsMoreHow-To GuidesTop Financial BlogsWise Bread BookMoney Tips NetworkSubmit a Guest PostContact UsAbout Our Writers Home » Personal Finance » Investment Is Real Estate a Good Investment? by Antar Salim on 16 September 2010 (10 comments) Photo: nancyarora2020 / Flickr ShareThis Share

Currently, we find ourselves in an economic quagmire with many investors ferreting opportunities to grow individual wealth. Unlike Baby Boomers, the need to search for personal wealth opportunities are particularly important for young investors, as we need to ensure that enough money is put into retirement "piggy bank." If you consider the general economic trend, young adults have to work longer into retirement years than previous generations in order to sustain a standard of living they were accustomed to in their working years. Consequently, young investors need strong investment returns that exceed the rate of inflation in order to avoid working in later years.

In lieu of our insatiable appetite for moderate to high rates of return, young investors know that traditional bonds won't meet our needs, as they normally return 5% per year. Consider that inflation is normally 3%, which leaves us with a real rate of return of only 2%. To be exact, it's slightly less than 2% based on the Fisher hypothesis, a theory where interest rate is independent of monetary measures, particularly the nominal interest rate. Hence, a real rate of return of a paltry 2% won't afford a 20-something the desired monetary growth for their long-term personal investment portfolio.

If bonds don't give young investors a high rate of return, many economists would suggest investing in stocks. The basic theory of stocks is that the greater the financial risk, the greater the reward. Most young investors know about those who have made a great sum of money in the stock market. We often overhear our friends and colleagues discuss how they made thousands of dollars in the market over a short amount of time.

But let's check the facts…

Consider that 10 years ago, the S&P 500 hovered at approximately 1,400. Today, it's at approximately 1,100. That's a decrease of 21% — an unpalatable figure for those who want to eat in retirement. Not only has the S&P declined, but the Dow is down by 3%. Again, it's not a return needed to prepare a young person for a decent retirement. Net takeaway: stocks.

After examining the investment opportunity in bonds and stocks, the next stop on our journey is real estate. I have often heard that real estate — particularly buying a home — is an investor's best asset. Let's see if this is a valid claim.

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Depending on your sources, the average home price in the U.S. at the beginning of the millennium was approximately $160,000. Today, that same home will sell for approximately $200,000. Before we attempt to determine whether real estate is a good investment for a 20-something, consider that home prices rose considerably during the first half of the decade. If we explore the change in home prices, the average home increased by $40,000, or 25% over the decade. If you do the math — considering present value, future value, and time — this equates to a 2.2% compound increase year over year. Congratulations, we're now in the positive rates of return.

Just one moment. We haven't considered the rate of inflation, which we know historically is greater than 2.2%. Not only that, we haven't taken into account that it cost us approximately 5% to 6% a year to borrow the money to purchase the home.

Granted, we all have to have a roof over our head, and I'm not suggesting that real estate is a bad investment, but it is my personal opinion that if your home is your best and biggest investment, then you may be in trouble. Young investors need to undergo a paradigm shift in which they view real estate as a place to live and not as a money generating asset. It is vital to our long-term financial success that we understand that homes are not a money machine that will make us all rich, but a place to live that affords us the ability to raise children and keep us warm during the winter months. A home may be your biggest investment — but it may not be your best investment. In my opinion, diversifying your personal portfolio and including a healthy blend of stocks, bonds, and real estate is the best way to go.

This is a guest post by Antar Salim, MBA. Antar serves as a coordinator for Rasmussen College School of Business, at the Eagan, MN college campus, where he teaches business degree-seeking students.

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Antar Salim, MBA serves as a coordinator for Rasmussen College School of Business at the Eagan, MN college campus, where he teaches...

Antar Salim's profile comments 10 discussionsAdd New Comment Comment: * CAPTCHAThis tests helps prevent automated spam submissions. Your name: * E-mail: Website: 16 Sep. 2010 | 6:52 AM Stephanie Christensen #1

Completely agree, Antar. I too, totally bought into the "truism" that real estate is a wise investment. I'm sure it was a sound and sure investment strategy in the "old days" when homebuying was something you did just once or twice (and saved up for for years), because you planned to stay in the home your entire life. IF that is your strategy, it probably still makes sense in the long haul. The trouble is, very few people buy homes for the long term anymore; they intend to continue "trading up" every few years.

Now that I am a homeowner and have experienced first hand how many other expenses it introduces, like tax, maintenance, and insurance, I'm inclined to believe renting might be the better way.

REPLY 16 Sep. 2010 | 12:42 PM Guest #2

Hi Stephanie,
thanks for your input and support of the paradigm. I'm curious to know what constitutes a wise investment for you?

Antar

16 Sep. 2010 | 7:55 AM Veritroth #3

The only real estate that should be considered an investment is from a rental that is cash flow positive. A person's primary residence should in no way be considered an investment. Common sense dictates that housing values can only rise sustainably with rising wages, making real estate an inflation hedge at best and outright liability at worst (interest on mortgage, insurance, taxes, maintenance, etc.)

Too bad for most people, their house is, by far, their largest "investment."

REPLY 16 Sep. 2010 | 12:45 PM Guest #4

Hi Veritroth,
I agree - assuming it is cash flow positive after you take into account risk. For example, if I can only generating 5% return in real estate - I would agree it is a poor investment compared to stocks that generate 4-5% dividend yields.

Antar

16 Sep. 2010 | 10:22 AM Joe Enos #5

I think you're missing the key point of considering real estate to be an investment. You're investing a ton of money that you're borrowing, rather than money you already have. If you have $200,000 cash in your hand, then it may or may not be a good investment to buy a house. However, if you borrow $200,000 from the bank, paying a low interest rate, getting 2% back through appreciation, a significant amount of money back through income tax deduction, and differencing out the amount you would have paid through rent by renting, you might just be making quite a bit of a profit.

If you're renting at $1,000/month, then you are giving away $12,000 per year with no hope of recovery of any of it. You started with no cash, so you're making no money on other investments.

If you buy, and your mortgage interest is $1,000/month (ignoring principal since that's not truly an expense), then you may get back $200/month ($2,400/year) through income tax deduction, and your home value increases by $4,000/year (2%), for a total of $6,400/year increase, which even that number increases every year. A $6,400 "profit" for "zero" initial investment is pretty darn good.

Of course, in real life, there's a down payment (not truly an expense but a big out-of-pocket event), property tax, closing costs, commission, home repair, and a ton of other expenses, which eats away at that $6,400 pretty fast. So the true question about whether home ownership is a good investment is whether or not your ownership expenses outweigh the return, and how long you live there may be the biggest factor in that question.

REPLY 16 Sep. 2010 | 10:51 AM andyg8180 #6

An investment is something that has value and returns capital either in the form of interest income or appreciation. So, no, a single home is definitely NOT an investment unless youre flipping it or renting it out to someone else.

So people have to look at Rent vs Buy scenarios.

REPLY 16 Sep. 2010 | 4:12 PM Libertyville CPA #7

Real estate can obviously be a good investment. But like any investment, timing is everything. Don't just think that because you invest in something it should always go up in value.

REPLY 16 Sep. 2010 | 4:33 PM Guest #8

With all due respect to this learned college "coordinator", this is a very poorly written, poorly contemplated article. On one hand, you seek to demonstrate in your article that stocks, bonds and real estate are poor, insufficient or losing investments, yet on the other hand you conclude that "diversifying your personal portfolio and including a healthy blend of stocks, bonds, and real estate is the best way to go." Your premises do not lead to your conclusion. And frankly, your conclusion that people need to diversify is not very original.

Moreover, the article fails to give "real estate" investment a fair shake. Generally speaking when "investors" invest in real estate, they are either flipping that property or renting out that property. Most people would not consider their residence as an "investment" per se, but rather it is a strategic decision between renting vs buying.

It is worth noting that if an investor did indeed purchase the house at the beginning of the millennium for $160,000, sells that same house now for 200,000 and only breaks even on the value of the house (considering inflation, etc), the investor would still walk away with 10 years of rental income (minus various costs, vacancies, etc)! Or alternatively, as the article suggests, if the investor financed the house, then he will have only contributed $32,000 as a down payment on the house (20% of purchase price), would likely have had a renter covering most if not all of the mortgage costs on the house for 10 years, and then sell it for $200,000. After paying off the remaining mortgage balance, the investor still walks away with a nice return on his initial $32,000 investment.

And the beautiful thing about real estate is that if you can afford to purchase the property in the first place (either outright or financed) you generally have the freedom to sell that property at whatever time it makes sense to do so. So, if the investor was so inclined, he could have pocketed even more profit if he elected to sell at the high points in the housing market between 2004-2006. Otherwise, he could simply wait a few more years until a more opportune time, all the while he is collecting rent and having someone else pay the mortgage for him.

REPLY 16 Sep. 2010 | 5:57 PM ajc @ 7million7years #9

Aaaah .... have you considered that you put in only 20% of the home price? So the return on YOUR investment (i.e. in cash) is considerably MORE than 2.2%?

Also, I would argue that most people are better at picking which real-estate will grow above average (i.e. merely investing in most metro areas and avoiding most rural areas will take you above the 2.2% average that you quote) than in picking which stocks will grow.

REPLY 17 Sep. 2010 | 12:09 PM Greg McFarlane #10

"Is Real Estate A Good Investment?" That's like asking, "Is clear liquid OK to drink?"

Assuming that you're talking about single-family homes, you're not looking at opportunity cost. Rent still comes with a -100% rate of return, regardless of market conditions.

If there was a practicable, actionable piece of advice or information in this post, I'm too dumb to glean it.

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