General Electric now appears to be in the middle stages of a death spiral. While the stock still has an equity value over $100 billion, the entire company is in the middle of a precipitous decline which seems to move to more serious levels in stages.

John Flannery, the current CEO, is doing his best to address layers and layers of debt at GE Capital that were moved off the balance sheet through legal structures (unlike Worldcom and Enron) in the 1990s. Wall Street analysts may or may not have come close to estimating the full obligations here, or the burden of pension obligations. I think that if Flannery is able to salvage anything for the shareholders, he should be inducted into the CEO hall of fame (but, I wouldn’t make that bet, I would sell my GE stock if I had any).

This site, BestCashCow, specializes in providing the public with the best savings and CD rates. Years ago, the best online rates were offered by two institutions that were both operated by GE Capital – GE Capital Bank and GE Capital Retail Bank. I’ve learned that some people have a way of setting and forgetting their savings and CD products, and some of these people have gotten nervous and reached out to the site.

Were GE Capital and GE Capital Retail Bank still under their original ownership, depositors would be protected to the maximum insured value provided by the FDIC.

However, these banks aren’t under their original ownership.

GE Capital Bank was sold to Goldman Sachs three years ago. The bank remains under Goldman Sachs’s ownership and has been rebranded as Marcus. We believe that Goldman Sachs is one of the most sound financial institutions in the country, and Marcus offers a series of savings and CD products where we would actually feel comfortable depositing and holding amounts over FDIC limits.

Editor’s Note: Marcus by Goldman Sachs is an advertiser on this site. Please see our advertiser disclosure here.

GE Capital Retail Bank was rebranded as Synchrony Bank in early 2014 and then it sold 15% of the company in an IPO in July of that year. In November 2015, GE relinquished all control of the remaining 85% of Synchrony through an asset exchange agreement with its shareholders (see the announcement here. As a result, Synchrony today is an entirely independent company that has been free of GE and its problems for over three years.

Editor’s Note: Synchrony Bank is an advertiser on this site. Please see our advertiser disclosure here.

Importantly, therefore, depositors who initially opened accounts at GE Capital Bank and GE Capital Retail Bank can rest assured today that their deposits are safe from GE’s possible death spiral.

See the best savings rates today here.

A major money center bank recently updated its website in such a way that before customers (and non customers) even log in they are encouraged to “Consider Preferred”.

Site users are immediately directed to a linked article that outlines the main benefits of bank-issued preferred stock (there are other companies that issued preferred, but the article focuses on bank-issued preferred). The main benefit is that yields are higher than bonds issued by the same institution (the article partially attributes this to supply and demand imbalances from a refinancing cycle and partially attributes this to the fact that they sit lower in the capital structure) so that they now yield as high as 5% whereas the 10-Year Treasury yields 2.90%. An additional benefit is tax treatment that is favored over that of bonds (preferred pay “qualified dividends”).

The article then goes into the risks. One risk is that the preferreds sit lower in the capital structure than bonds and have a lesser stake in liquidation. A second risk is that the dividend on a preferred stock is paid at the issuer’s discretion and can be turned off if the issuer first eliminates its common dividend. (It is easy to discount these two risks as insignificant as banks are significantly more secure than in 2008).

Yet another risk is that call provisions could cause the yield-to-call to be significantly lower than the yield, which the article correctly cites as a serious risk for any instrument that is being purchased at a premium over its face value.

Finally, the article mentions interest rate risk. It states:

The perpetual nature of a preferred also brings interest rate risk, as there is no set maturity date in which the issuer must redeem the security. If longer term interest rates go higher, the price of the security may dip.

We think that this is the single biggest reason to avoid preferreds, and we don’t think that the risk can be well mitigated by buying fixed to floating rate preferred stock, as the article suggest.

Interest rates are going up. We have stated that bond prices can get killed in a rising interest rate environment. While BestCashCow is the most comprehensive source of CD rate information, we’ve also encouraged investors to consider carefully the implications of investing in long term CDs given the backdrop of short-term rates that are likely to move higher over the coming 12 months.

Preferred stocks, unlike bonds and long-term CDs, have no maturity date. While these instruments can come under severe pressure in a rising rate environment, bond investors and CD investors always have the option of holding an instrument to maturity in order to receive their full principal (provided the issuer stays solvent).

As we move from an interest rate environment that has been lower than anyone alive has ever seen for longer than anyone imaged, it becomes entirely possible that we may never go back. The Fed itself is guiding towards a Fed Funds rate of 3.375% at the end of 2020. If short-term rates go there and stay there, long-term rates will presumably go higher, maybe much higher. The value of instruments that represent a perpetual claim on an issuer’s assets without any date of redemption will fall, fall continuously, have no floor, and never recover.

It is very tempting to reach for yield here, but we think that prudence is especially warranted in a rising yield environment. Savings rates are already pushing 2%, and, if you must reach, the premium offered by one-year CDs is higher than it has been in a decade. See one-year CD rates here.

It’s nice to have over $250,000 in savings, but it is a pain in the neck to have to split the money up in more than one bank in order to ensure that it is all covered by FDIC insurance.

Given the instability in America right now, full insurance on savings is a must. FDIC is an independent agency of the United States government. It protects depositors against loss of their funds were banks to fail. The FDIC was created in 1934, during the Great Depression, and since its establishment no deposits insured by the FDIC have ever lost a single penny.

So full FDIC insurance makes all the sense in the world. And, any savings or CD account today valued at $250,000 or less is fully insured. Any account over that amount in insured only for $250,000.

There are, however, a number of ways to insure funds over $250,000 in a single account. Some require rather obscure and complicated steps. But two are easy and both make a whole lot of sense, especially because it is a lot less complicated when you have all your savings in a single bank.

One very simple way to keep your money in one bank and stay fully insured when you have over $250,000 is to open a joint account with your spouse. In such a case, the full value of the joint account up to $500,000 will be insured by FDIC.

A second strategy, a bit more complicated than a joint account, is to open a Revocable Trust account. Revocable Trusts are a smart way to organize your personal resources – far better than a will – and to enjoy FDIC insurance on a single account as high as $250,000 times each and every beneficiary. Thus, if an individual names four beneficiaries, a single account can be insured fully for one million dollars (four times $250,000).

While Revocable Trusts may appear a bit intimidating, they are easy and relatively inexpensive to set up.