Darby Direct is offering two hot online CD deals: a 2.75% APY 18-month CD and a 36-month step-up CD with an average APY of about 4.00%. There's also a 9-month CD special, but the rate is much less competitive with a 1.25% APY. Minimum deposit is $500. The promotions are listed at the bank's CD page as of 8/15/09.
The step-up CD starts with 3% APY the first year and goes up to 4% APY the second year and 5% APY the third year. According to the small print, the rate changes will occur on 8/15/2010 and 8/15/2011. Additional details are listed in the CD disclosures. One significant issue is a severe early withdrawal penalty of 365 days of interest. Another downside is that the interest will be credited to the account annually. Grace period at maturity is 10 days.
Update: The CD now allows the customer to make a penalty-free early withdrawal on each anniversary date. The customer will be granted a 10-day grace period during which any or all of the funds may be withdrawn without penalty (see post for more details.)
The 18-month CD has an early withdrawal penalty of 6 months of interest. The crediting of interest and the grace period are the same as the 36-month CD.
A reader who has a Darby Direct savings account forwarded an email he received from Darby Direct about these CDs. The deal may only be for existing Darby Direct customers. However, from the website it appears to be available to new customers. I wasn't able to reach a CSR before the weekend. I'll check on Monday. One thing that is clear from the website is that only Georgia residents are eligible. However, I'm not sure if you have to be a Georgia resident if you're an existing Darby Direct savings account customer.
Update 8/17/09: According to the CSR, new customers who are Georgia residents and all existing customers are eligible for these CDs. Also, the CSR confirmed the add-on feature that was mentioned in the disclosure: "You may make unlimited deposits into your account. ... The minimum amount you can deposit is $500." Refer to section "Additions to Account" on page 2 of the disclosure.
Darby Direct launched a new internet savings account last April with a 3.00% APY. At first it was available nationwide, but in less than a month, the bank restricted new accounts to only Georgia residents. Unfortunately, this has become common this year as banks offering good nationwide deals quickly meet their deposit targets (see post). For more info about Darby Direct and this savings account, please refer to my April Darby Direct review.
Darby Direct is an online division of Darby Bank & Trust Co., and accounts at Darby Direct are FDIC insured (FDIC Certificate # 14580).
Another potential issue is that Darby Bank doesn't have the best ratings for safety and soundness: 1 star (lowest) at Bankrate.com and 3 stars (adequate) at BauerFinancial. Both ratings are based on 3/31/09 financial data. The Bankrate rating used to be 2 stars (below peer group) when it was based on 9/30/08 data. With the high numbers of Georgia bank failures this year, some may be suspicious of financially weak Georgia banks offering top deposit rates. If you stay under the FDIC limit, there should not be a concern of losing money. However, if a bank fails during the term of a CD, the new bank that assumes the deposits may decide not to honor the CD rate to maturity. In that case you would be free to make a penalty-free early withdrawal and you would receive the accrued interest. As many are finding out in recent months, losing a rate lock can be painful in a low interest rate environment. It's also more painful for a step-up CD since you would not benefit from the high rates in the later years. I assume the FDIC or the acquiring bank would only pay interest for the rate in effect at the time of closure.
Thanks to the readers who emailed me and commented on this CD special
Other Competitive Certificate of Deposit Rates
Another attractive Georgia CD deal is at Bartow Bank which is offering a 3.00% APY 15-month CD special (used to be 9-month). Unlike Darby Direct, it's limited to only a couple of Georgia counties (see post). For other competitive CD deals available nationwide and in other parts of the nation, refer to the following: