 Dear
Dr. Don,
I have consulted Bankrate for many years
before purchasing my CDs and investing in money
market accounts. My question is: Why do
banks that show a four-star rating when I buy
a CD with them have a two- or three-star rating
the next time I'm looking to invest? What
does that mean for the CD I've already purchased?
-- Lois Latitude
 Dear
Lois,
Thank you for using Bankrate as your consultant in making your investment decisions. The star rating for banks and credit unions is a graphic representation of a financial institution's capital adequacy, asset quality, profitability and liquidity (CAEL). The following table shows how the star rating compares to Bankrate's Safe & Sound CAEL rating.
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Safe & Sound CAEL rating system |
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Beyond finding your financial institution's Safe & Sound ratings on Bankrate, you can also get a financial memorandum and/or its most recent financial statements from the financial institution.
Ratings are updated quarterly. You wouldn't expect
wide swings in ratings from quarter to quarter,
but the ratings are based on the bank's financials
and they will fluctuate over time. Banks that
are paying high rates on deposits may be on shakier
financial ground than banks that don't have to
troll for depositors. If you've been chasing yields,
then that could explain why you're seeing rating
changes.
If you invested in a CD with a four-star bank and
the bank is now a two-star bank, then your CD
suffered, too. In an insured deposit account there's
nothing to worry about with this change in rating.
Insured deposits have the full faith and credit
backing of the United States government. There
would, however, be a price impact in a negotiable,
jumbo CD that is over the FDIC insurance limit
of $100,000.
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