If you’re parking money in bank certificates of deposit as a safe harbor, the good news is that the temporary increase in Federal Deposit Insurance Corp. coverage from $100,000 to $250,000 per depositor that was set to expire at the end of 2009 has been extended through Dec. 31, 2013. For details on insurance coverage, go to www.myfdicinsurance.gov.
The flip side of that news is that the odds depositors may have to rely on that insurance are also rising. The FDIC reports that its list of troubled banks grew in the first three months of this year to its highest level in nearly 15 years, though it is still far below the high water mark of 2,165 banks listed as troubled in the midst of the savings & loan crisis back in 1987. The FDIC also just issued new rules intended to prevent banks that are “less than well capitalized” from soliciting deposits at interest rates that significantly exceed prevailing rates. Currently, about 248 out of more than 8,200 banks nationwide fall into this category, the agency says.
As we reported previously, you should definitely avoid chasing high yields offered by any non-federally insured institutions. The FDIC also offers tips on how to safely shop for CDs.
The FDIC doesn’t disclose the names of banks on the troubled list because over the past couple of decades, the vast majority have survived: from 1982 through 2007, on average 13 percent of those making the list actually have failed, with a high of 25 percent of those on the list going under in 1990. So far this year, 36 banks have failed, compared to a record 534 that went down in 1989.
If the worst happens and a bank does fail, depositors typically won’t feel the effects in cases where the FDIC finds a buyer for the troubled bank. Even when a buyer can’t be found, the FDIC has gotten quick turnarounds of depositors’ funds down to a science,” says FDIC spokesman David Barr. “Recently, the failure of a Georgia bank for which we couldn’t find a buyer was announced on Friday, as most failures are, and by Monday morning the FDIC had the checks in the mail to depositors.”
Getting your money back can take longer, however, if you buy CDs through a broker rather than directly from a bank. Barr says for one May 2007 bank failure, it took more than a month for some brokers to provide the FDIC with documentation needed to reimburse holders of CDs. “Most brokers now are better about getting the necessary paperwork to us, but depositors may still face delays ranging from a few days to a week or more,” says Barr.
Even though the FDIC won’t reveal which banks are on its problem list, www.bankrate.com offers a useful tool to comparison shop for both high-yield and safety, which may be appealing especially if you’re buying brokered CDs. The site not only lists FDIC-backed banks offering the highest CD rates, but it also offers its own independent safety ratings of those institutions. While FDIC insurance guarantees you’ll get your money back, you probably would prefer banks with higher safety ratings, simply to avoid any potential bureaucratic delays.—Andrea Rock
Previous
Post a comment
Comments: