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Sorry, FDIC Can't Guarantee Interest on That CD

When selling failed banks, Feds allow buyers to slash expected payout

By Harry Kimball,  Newser Staff

Posted Nov 4, 2009 9:38 AM CST
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(Newser) – There’s a little-publicized part of your bank deposit the FDIC doesn’t insure, and it’s driving scrupulous savers up the wall. The logic is simple enough: When the FDIC takes over a failed bank and resells its assets, it allows buyers to alter interest rates, particularly on CDs. This actually makes sense, as it’s often “irrationally high rates” that sunk the bank in the first place, a CEO says. But don’t tell that to people who’ve seen contractually obligatory interest rates plummet.

One woman who spoke with the Huffington Post saw the rate on her 5-year CD fall from 5.7% to 1.6% when her bank changed hands. “It may be legal, but it's unethical, unfair, and unjust,” another miffed depositor says. The FDIC reasons that it's a necessary enticement for bad-bank buyers, and returning interest rates to market levels is a no-brainer way to help get a bank back on its feet. “I can see where customers may be disappointed,” an industry lawyer says. “But some of the banks that have failed were offering rates that really are not sustainable.”

A bank.
A bank.   (AP Photo)
FDIC.
FDIC.   (©zieak)
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Look, a CD is a contract between you and a bank. When the bank fails, you have a contract with a bank that no longer exists. So the FDIC steps in as a receiver. - John C. Corbett, CEO, CenterState

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COMMENTS
Showing 3 of 8 comments
kyleleitch
Nov 4, 2009 9:13 AM CST
..."unethical, unfair, and unjust." Why is that a surprise?
calkino
Nov 4, 2009 6:13 AM CST
if you want truly safe investments, buy a permanent life insurance policy with a mutual company--meaning the company is owned by the policyholders, not stockholders. northwestern mutual, for instance, just announced that this year they'll pay a 6.15% dividend on their permanent life policies. when you couple that with the fact that they grow tax-deferred, you've got nearly a 9% taxable-equivalent yield, and these mutual companies have always received the highest possible financial strength ratings.
schmidtkoff
Nov 4, 2009 5:17 AM CST
we have been told told to save more and spend less. so now we are expected to accept a mere pittance for being frugal while the big banks, financial institutions, fdic, madoffs and corporate communists feed off our blood money like the parasites they are? holy shit. ain’t that just somethin’. another crystal clear example of the war on the middle and lower classes. talk about a caste system in india, it is alive and well right here in america.
Money • US

 
CDs • certificates of deposit • FDIC • bank failure • interest rates • assets • life savings

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