Bank Champ » Certificate of Deposit

Failed Banks Not Required to Honor CD Rates

Bank Champ — Thu, 16 Apr 2009 12:31:47 +0000

When a bank of fails, it is usually sold to another bank. The new owner has the option of honoring the existing certificate of deposits, and their rates, or cutting them. Since a failing bank often increases their rates in an attempt to drum up additional deposits, the rates they offer are going to be higher than average and so the FDIC gives the new bank the option of accepting these higher than average rates or decreasing them.

Why would a bank keep higher than average rates? Most banks honor the higher rates because they want to build goodwill. It does them no good to buy the assets of a bank and then see them run out the door the next day. They’re trying to maintain those business relationships so the branches they do buy will be profitable and grow.

Do they always keep the higher rates? No, when Silver Falls Bank failed in late February, certificate of deposit creditors had their rates slashed:

As a former banker, Norm Andreen knew his certificates of deposit were safe when regulators shut down Silver Falls Bank.

But he was disappointed to learn this week that Citizens Bank of Corvallis, which took over his deposits, was slashing interest rates from as much as 4 percent to 1 percent or less.

Fortunately depositors aren’t bound to the new rates. Citizens, the buyer, was required to notify depositors of any rate change and let them cancel their CDs without penalty (which they did). Remember, the deposit itself was safe because it was covered by FDIC insurance, but the rate wasn’t.

UFB Direct 2.65% APY 12-Month CD

Bank Champ — Fri, 27 Mar 2009 12:29:16 +0000

UFB Direct, a subsidiary of Waterfield Bank, an FDIC insured bank, has one of the best set of certificate of deposit rates currently available today. The crown jewel of the bunch is a 12-month certificate of deposit (CD) at 2.65% APY with a minimum deposit of $8,000. All of their CDs have a minimum deposit of $8,000. They also offer a six month term CD for 2.30% APY, which is a pretty solid rate itself. If you’re willing to go to a 60-month CD, they are willing to give 3.50%, which is a fair value for that length.

If you want a CD for multiple years, I recommend trying Pentagon Federal Credit Union because their 3-year yields 3.50% APY and the 5-year sports a 4.00% APY rate. You can qualify to join PenFed if you join the National Military Family Association, an organization anyone can join by paying an annual fee.

The only nationally available rate that I can think of that beats the UFB Direct 2.65% on a 12-month CD is GMAC Bank, 2.85% for a 12-month term CD and their minimums are only $500.

Hottest 3-Month CD Rates

Bank Champ — Thu, 26 Mar 2009 15:52:10 +0000

Typically the longer the maturity, the higher the interest rate. However, in with the economy the way it is now, cash is king and many banks aren’t willing to pay top dollar for longer maturities. If you’re looking to find a decent short term certificate of deposit rate, you won’t find many banks offering terms as good as these banks. Many of them are online banks where the paperwork for opening such short term CDs is so automated and their overhead is much lower, but there are some traditional banks offering solid rates.

The best rate you can get is 3.00% APY CD from TD Bank USA, you may be familiar with TD Ameritrade, and that’s if you have $25,000. TD Bank USA deposits are FDIC insured up to the FDIC maximum ($250k until December) and you can get this rate if you open and deposit an account

If you don’t have $25,000, then a four-month CD at 3.00% APY at Danversbank may be your best option. They offer a 4-month Online CD with a 2.96% APR/3.00% APY with a minimum of only $500 to open. Danversbank is also FDIC insured and based out of the Town of Danvers, near Boston Massachusetts. Danversbank also has a Free Rewards Checking account currently offering $4.01% APY on balances up to $25,000, which makes it a great one-two punch.