Not happy with the rates on certificates of deposit at your bank? They may be capped by the Federal Deposit Insurance Corp.
The FDIC enforces a cap on CD rates at banks it considers not well capitalized to prevent them from digging themselves deeper into a financial hole to attract new depositors. For a demonstration of just how badly that can turn out, see Cyprus where banks tried to keep getting fresh funding by attracting international depositors with rates as high as 4.66 percent a few months ago.
Prior to 2010, the FDIC's cap was based on Treasury rates, but since then it has been 75 basis points plus the average national rate for each deposit product. The FDIC updates the caps each week. The latest caps, put into place April 22, set one-year CD rates at a maximum of 0.96 percent and five-year CDs at 1.5 percent for deposits less than $100,000. That's down from 1.05 percent for one-year CDs and 1.86 percent for five-year CDs a year ago, and 1.95 percent and 2.95 percent in 2009.
While the FDIC keeps its judgments about the solvency of banks secret, as of June of last year there were 244 FDIC-insured banks that did not qualify as "well capitalized" under FDIC criteria.
What do you think? Should the FDIC limit the amount of interest struggling banks can pay on CDs?
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