Idea One: Asset-Backed notes can pay higher interest than bonds. Bonds are a form of project or operations financing for businesses and governments. The goal for bond issuers is to use capital for as low a fee as possible. That fee, the interest rate, is what investors earn. At this point in history, there is ample access to that kind of capital, so the rates are low. But notes issued against an asset portfolio exist for a different reason. Promoters of these kinds of offerings usually create them for the express purpose of delivering yields to investors. Those yields are what draw the capital. The promoters then earn fees from running the asset pool. So once the management costs are covered, the promoters have an incentive to pass on just as much of the pool’s earnings to the note holders as possible, since the higher the note rate, the more investors will participate, and the bigger the pool can get.

Idea Two: Insurance products such as annuities and asset-based long-term care (LTC) insurance usually have internal compounding rates which are higher than CDs. An additional 2%-4% per year is not unusual. Plus, insurance company products often have tax deferral or even tax free features, which can have the same positive effect on value accumulation as earning a few more points of interest on top of that. Insurance companies have a lot more latitude in how they invest than banks do, and their products get special tax treatments that products from banks and investment companies can’t use. As such, they have more options for delivering higher yields to investors as a means to attract capital. As an industry, they are very good at using those advantages to do just that.