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Corporate Demand Notes Aren’t For Me

I sometimes question whether I’m too attached to federal deposit insurance, particularly for short-term investments.

When I tell people my money’s mostly invested in government-backed accounts, I’m usually met with, “But you can’t earn anything that way!”

I pondered this again after seeing an online ad for Duke Energy Corporation PremierNotes.

(Disclosure: Before retiring, I was regularly engaged, as a lawyer, in transactions involving Duke and affiliates.)

Duke identifies PremierNotes as “an alternative for your short-term funds” – a substitute for “bank accounts, short-term CDs and money market mutual funds.”

Legally speaking, they are promissory notes of the giant energy holding company, offered continuously and redeemable by investors on demand, at face value plus accrued interest.

You can buy and redeem PremierNotes in ways mimicking the deposit and withdrawal features of accounts at insured depository institutions.

There’s a check-writing privilege, for instance.

For details, including minimums, maximums and fees, see the prospectus:

PremierNotes annually yield 1.21% on balances below $10,000, 1.41% on balances between $10,000 and $49,999, and 1.61% on balances of $50,000 and above.

Compare that with the top 1-year CD rates, which pay 1.15% APY, or the top nationally available savings account, which pays 1.25% APY.

Duke can change rates weekly, but they can’t be less than the most recent iMoneyNet Money Fund Average, plus 0.25%. (That average is currently 0.03%, so the minimum annual yield would be 0.28%.)

And, of course, PremierNotes aren’t FDIC-insured.

GE Capital and Ford Motor Credit have similar programs (GE Interest Plus, Ford Interest Advantage), currently offering lower rates (e.g., 1.11% annual yield on $50,000-plus balances).

I wish these companies well, but I think I’ll stick with lower-yielding, federally-insured accounts for my short-term stash.

I suppose one theory of these corporate programs is that, because you can demand immediate repayment, you needn’t obsess over credit risk.

Your money’s only a phone call away.


But suppose a Duke nuclear reactor explodes and its credit lines dry up?

Was it a GE reactor?

OK, I’m obsessing.

In truth, I opt for FDIC insurance coverage just because my short-term funds are, well, short-term.

I don’t keep large cash balances around long. I reinvest them for the longer-term.

Because they’re temporary, I never stretch for yield. I figure, why give up the safety of government deposit insurance for a few extra bucks of interest?

Call me a wuss, but it’s the government, not some private corporation, that prints our money.

And, as Ben Bernanke has demonstrated, it’s quite good at it.

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