Financial Services Review

From the Editor

The Market for Retail Certificates of Deposit: Explaining Interest Rates

Retail certificates of deposit provide financial institutions with funds and depositors with income. Because interest rates and terms on deposits vary, understanding the reasons for the variation should help participants in this market make better decisions. This study explores interest rates and terms on deposit offerings from banks and thrifts while controlling for risk, service, and demographics. Results suggest that less than perfect market efficiency exists to the extent that institution...

Disability Income Insurance Premiums: An Investigation of the Decision to Pre-Tax or Post-Tax the Premiums

Individuals who pre-tax their disability insurance premiums must pay tax on any disability benefits they receive. However, individuals who pay for the insurance with after tax dollars may exclude the benefits from their taxable income. In this paper, we investigate whether the expected tax savings are greater for individuals who pre-tax or post-tax disability income insurance premiums. Using disability statistics from the Commissioners Income Disability Table, expected values of tax savings a...

Social Security: Who Wants Private Accounts?

Preference for partial privatization of social security is explored using a 2004 sample of 7,565 young baby boomers. Two-thirds of the sample would choose partial privatization. Although a greater proportion of higher-income, wealthier, and more educated respondents preferred private accounts, multivariate analysis reveals that intelligence has a stronger effect than socio-economic variables. An average of 43% would be invested in equities, but a surprising 35% would be invested in government...

Harvesting Capital Gains and Losses

Monte Carlo simulations are used to demonstrate that a very attractive tax-based trading strategy is to realize all capital losses, using excess losses to offset realized gains to rebalance the portfolio. This strategy increases the mean and median return by taking advantage of the tax-deductibility of losses, and mitigates risk by allowing low-cost portfolio rebalancing. This portfolio rebalancing also restarts the basis and time clock, thereby planting the seeds for a future harvesting of c...

Retirement Plans for College Faculty at Public Institutions

This study provides a base line cross sectional analysis of defined benefit (DB) and defined contribution (DC) retirement plans based on the largest four-year public institutions of higher education in each of the 50 states. The focus is on types of plans that are being offered and an evaluation of their risk and return. Findings provide comparative analysis on the broader trends in DB and DC plans offered by other public and private plans.