Risk Balance with CDs/FDIC

September 18, 2008 12:19 PM

What are the logistics of CDs at a bank that gets taken over by the FDIC?

If I'm looking to put money into CDs, the best rates out there are obviously with the banks in desperate need of cash (WAMU, Indymac pre-blowup, etc.). I know that deposits and CDs are insured up to the FDIC 100k limit...what I'm wondering is what the template is in the following situation:

Say I invest 50K tomorrow in a 3 year CD at a great rate, and in two months the bank gets taken over by the FDIC. What happens then? Do I get my CD paid back in full w/accrued interest immediately as of the takeover date? Does the bank continue to function, and my CD gets paid normally by the government as if nothing happened? Somewhere in between?

Thanks!

posted by raz5 to work & money (3 comments total)

In all likelihood, the assets of the bank get sold to another bank, in which case your CD moves over to them. At that time you can probably negotiate with your new bank; any decent bank would probably let you withdraw the funds without penalty, although buyer beware.
posted by mark242 at 12:40 PM on September 18, 2008

Here's what one blogger was told regarding their CD from the now-defunct Indymac bank:

I just spoke to a woman from the FDIC regarding Indymac CDs and she told me that holders have several options. They will have six months to cash out the CDs with no penalty or they can keep them at the bank. If they keep them at the bank the FDIC will continue to pay the contract interest rate. But, if another bank comes in and buys Indymac, as I'm sure the FDIC hopes, the bank has the right to adjust the rate paid on the inherited CDs. In that case, the new bank will send a notice to all remaining CD holders. She said it wasn't clear if CD holders would have an opportunity to cash out their CD penalty free at that point.
posted by burnmp3s at 12:54 PM on September 18, 2008

I have/had money at IndyMac. When the takeover happened, I got a letter in the mail saying that I had 18 months to claim my account. My interest rate was unchanged (although the FDIC had the right to do so, they didn't), and I had a six month grace period to close my CD without penalty and get my money and interest, which I've exercised and reinvested. Nice, since interest rates have gone up. In the time between the bank takeover and me asking for my account back, the money continued to accrue the agreed interest rate. The bank is operating business as usual and even still offering new accounts.
posted by a robot made out of meat at 1:54 PM on September 18, 2008