Bank sold - not honoring CD rates

[disneysteve]

My mom bought a 1-year CD about a month or two ago. The rate was 2.078%. She got a letter the other day that the bank had been taken over and the new bank was resetting the rate to a "competitive" rate of 0.69%. Due to the takeover, she was given the option of withdrawing the money at any time without penalty. Mighty nice of them. Of course, we sent off a letter to close the account since there are several banks paying 2% currently. As soon as she has the money, she'll just put it somewhere else. It is just a hassle, though, especially for seniors like my mom (she's 79) to have to move everything around. I think if one bank buys another, they should have to honor existing contracts.

[Ima saver]

I agree!!

[creditcardfree]

I agree, too.

[kv968]

I agree that in theory the acquiring bank should honor the previous bank's CD rates. However, you have to take into consideration what condition the taken-over bank was in before the acquistion. If it was close to failing, a healthier bank most likely wouldn't have bought it if it had to pay "above-average" rates to its depositors. Which then in turn would lead to an FDIC takeover and most likely a bank taking it over offering the same low rates thereafter.

I'm sure its a hassle though to have your money tied up in something that is supposedly "guaranteed" like a cd only to have it taken away for no wrong doing on your part. Like you said, at least they let you take the money out without a penalty. Thanks a lot

[ktmarvels]

We were thankful that when WaMu got bought by Chase, they honored their 5% CD! We ended up getting the CD the day before the buy out. We bought it figuring that worse case, if they didn't honor the rate, we could pull out the money and put it back where it was.

I'm sorry that isn't the case for your mother. It really is a hassle.

[kork13]

DS -- Are they going to at least going to honor the current value of the CD? For the last however many months, it's been earning 2% interest. With the withdrawal, does she get that, or are they retroactively reducing the entire thing?

I think I would be okay with them changing the rate as long as the previous rate is still honored to the point of the sale. That way it's at least similar to when CC's change terms -- you can either accept the new terms or close the account.

[kv968]

DS -- Are they going to at least going to honor the current value of the CD? For the last however many months, it's been earning 2% interest. With the withdrawal, does she get that, or are they retroactively reducing the entire thing?

Actually I think they should "penalize" themselves and pay you an EXTRA 3 months worth of interest which they would have charged you if you were to have prematurely cashed in the cd

[disneysteve]

DS -- Are they going to at least going to honor the current value of the CD? For the last however many months, it's been earning 2% interest. With the withdrawal, does she get that, or are they retroactively reducing the entire thing?

The rate change is as of 12/19, the date of their letter. Of course, she didn't get the letter until this past week and it will take 3 weeks or so to finalize a transfer to another bank and she will lose interest during that whole period of about 5 weeks all together.

Actually I think they should "penalize" themselves and pay you an EXTRA 3 months worth of interest which they would have charged you if you were to have prematurely cashed in the cd

Sounds good to me. As I said, she'll end up losing about 5 weeks worth of interest due to the change.

[Joan.of.the.Arch]

Thanks for bringing this up, disneysteve. You've educated me. It never occurred to me that such a thing could happen. If I'm not mistaken, when banks get taken over like this, there is not a whole lot of certain news available. So it is not as if one could have just gone down to the bank on the magic date of 12-19 to closeout the CD....I'm going to try to keep an eye out for what happens to CDs at other bank closings.

[TermMonster]

It could have been worse - much worse! When a bank is closed by the FDIC everything is frozen - no chance to cash out. The wait time can be as long as 6 months before "insured" assets are paid with ZERO accumulated interest AND subject to insurance limits. Meaning you have over the FDIC insurance amount and your bank fails - so sorry, the money is GONE!
Banks sell CDs like they are rock solid, never lose money instruments. Nothing could be further from the truth and I personally have a problem with them advertising CD rates. The higher the rate, the more trouble your bank is in and therefore the more likely they are to fail and potentially lose you money.
Just be careful. Happy New Year to you all!
-TM

[Credit Girl]

I totally agree! It is so unfair of the bank to do that to their customers...I think it is a great idea that overtaking banks should honor the contracts of the pre-existing bank members. It is a good thing your mom pulled out her money.

[scfr]

First of all, I'm sorry that happened to your mom, disneysteve.
However, that is the risk with CD's, especially if you jump on a high rate being offered by a bank about to go under.

I say this as someone who opened a 5% 5-yr CD with WaMu right after they were taken over by Chase ... I knew Chase did not have to honor the rate, but when I read the fine print I saw that I would be able to close the CD with no penalty should Chase decide to change the rate, so I decided to go ahead and get the 5% for as long as I could. So far, so good.

Will I be bummed if Chase changes the rate? Of course. But it is their right to do so.