Safe & Sound ratings do change

Don Taylorq_v2.gifDear 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

a_v2.gifDear 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 as measured by Bankrate's Safe & Sound ratings. The following table shows how the star rating compares to Bankrate's Safe & Sound rating.

Safe & Sound® rating system
Star ratingDefinition
starstarBelow peer group
starLowest rated
Not Rated "NR"Complete data not available
ClosedInstitution is closed
GDesignates high growth

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 $250,000.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & investing" or "money."


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