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Though the number of annual bank failures has fallen since the height of the financial crisis, it's still all-too common to see banks going belly up. With the Federal Deposit Insurance Corporation on the case banks don't generally just collapse but instead the FDIC arranges to have another bank take over the failed bank's deposits.
Two out of the 90 failed banks so far in 2011 have been shuttered without a buyer. For bank customers in that scenario, the FDIC mails out checks to cover their insured deposits.
But when another bank steps in to buy a failed bank, customers should notice very little but the terms of their accounts may change -- particularly their CD rates.
Early this month, the website for the SouthtownStar newspaper ran a story highlighting how disruptive a change of CD terms can be for savers.
From the story, "Bank changes CD terms after FDIC takeover deal:"
They had long-term CDs that paid 3.8 percent interest rates until 2015. The CDs initially were taken out at Integra Bank in Mokena, which was taken over by Old National Bank in a deal brokered by the FDIC.
But Old National Bank’s suburban Chicago deposits have been purchased by First Midwest Bank.
Before First Midwest Bank takes over on Dec. 3, however, Old National Bank sent out notices to its CD holders.
The elderly Tinley Park couple were notified they could either cash in their CDs without penalty by Nov. 14 or accept a new rate of .70 percent.
That’s less than 1 percent for the decimally impaired.
“Over a period of four years, I estimate we’re going to lose $18,000 in interest earnings on the CDs,” I was told by the husband of the woman who initially called me.
Ouch.
Have you had CD terms altered by the bank that took over a failed one?
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