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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
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Posted Nov 4, 09 9:38 AM CST
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(Newser)
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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.”