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BillSavings > Blog > Personal Finance > Bank Failures and Your Savings Rates

BillSavings.com Blog

Bank Failures and Your Savings Rates

Posted By Frank

There's no question that the economy is in a tough spot right now and it's likely things will get much worse from where we are now. As jobs continue to get eliminated and more financial institutions face continuing struggles, some consumers are trying to get the most out of their conservative investments. One impact that this situation has had is on the rate of Certificates of Deposit as well as high yield savings accounts. As the Federal Reserve continues to cut interest rates, most of us have seen our rates of return on conservative investments drop significantly, in some cases lower than the current rate of inflation. One consumer over at CNN Money recently asked, however, what happens to rates of return when a bank fails and another bank acquires it's deposits?

While it's not a happy situation for your bank to fail and have to worry about where your assets will end up, in many cases deposits are sold off to another financial institution. If this happens, as it did when JP Morgan Chase acquired Washington Mutual's bank operations, the FDIC stepped in and made sure customers knew that all of their WaMu deposits would be fully protected. So for your certificates of deposit, you would continue to receive whatever it is your CD rate was when you first acquired it. Once that CD runs out, however, you'll have to purchase your CDs from the new bank or another bank, and given the current rate environment you'll likely be facing a smaller rate of return. Savings accounts, on the other hand, are constantly fluctuating, and so the bank that bought your deposit can (and usually does) change the return on your account as they see fit or as market forces determine.

Worst case scenario, FDIC insurance will temporarily cover up to $250,000 in insured bank accounts and Certificates of Deposit. So you can still rest easy even if your bank happens to go under in most cases.

Category: Personal Finance

10/9/2008

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