Dedicated to Deposits: Deals, Data, and Discussion

Flagstar Internet Money Market Rate Plummets and Is No Longer Competitive


Flagstar Bank
Flagstar Bank slashed the rate on its Express Money Market Account yesterday from 1.09% to 0.50%. This is the second major rate cut this month. Last week it slashed the rate from 1.60% to 1.09%. Before December Flagstar had maintained very competitive rates on this account since 2007. This latest change takes Flagstar out of the field of competitive internet savings accounts.

Even Flagstar's own webpage shows how bad this rate is. In the money market page they compare their money market rate with the national average which is listed at 1.03% APY. This used to show how much higher they were compared to the average. Now they're less than half the national average they list in this table.

In addition to the money market rate, Flagstar CD rates have plummeted. All of their current CD rates are under 2% and that even includes the 60-month term.

I had thought that last week's rate cut may have been due the new FDIC rate caps. Last week's rate of 1.09% was just under the FDIC rate cap for money market accounts of 1.10%. The FDIC rate caps will be taking effect in January and are intended for less than well capitalized banks. However, a reader noted the following in the comments:
Flagstar Bancorp said in its 10-Q, filed in 11/2009 for quarter ended 9/30/09: "At September 30, 2009, the Bank exceeded all applicable bank regulatory minimum capital requirements and was considered 'well capitalized.' We are not subject to regulatory capital requirements.

I just noticed this December 14th press release from Flagstar which stated:
additional regulatory restrictions have recently been imposed on the Company and the Bank, including limitations on: asset growth; accepting, renewing or rolling over of any brokered deposits; making capital distributions; ...

This last rate cut is so large that it goes beyond the FDIC rate cap. Flagstar may have decided that it needed to reduce its deposits. ETrade Bank did this earlier this year. Before 2009, ETrade Bank's Complete Savings Account had been very competitive. The rate started plummeting in April and it bottomed at 0.50% in October. I noticed ETrade mentioned its intention to reduce deposits in its quarterly filings. Here are some excerpts:
To accommodate this planned long-term reduction in assets, the Company is also similarly reducing its liabilities.
the Company continued to execute its ongoing strategy to reduce bank-related deposits.

Flagstar may have decided to take these same steps. Like ETrade, Flagstar is having financial troubles with high nonperforming loans. This MSNBC article reviews banks with troubled asset ratios. Ratios above 100 indicate that banks had more troubled loans than money to cover them. Here's what the article has on Flagstar:
The 77th largest, Flagstar Bank, Troy, Mich., has had its ups and downs. Its ratio has risen from 32 in December 2007 to a high of 106 in September. The bank's parent company has also received TARP funding.

  Tags: money market accounts, Flagstar Bank

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Comment #1 by Grateful reader (anonymous) posted on
Grateful reader
A supporting item that Flagstar wants to reduce its deposits is that they sent me an email within the past week offering a penalty free withdrawal from my CD.

Comment #2 by Anonymous posted on
They are on the FDIC dreaded list for closure and they must act immediately to reduce the liabilities i.e. deposits.

Comment #3 by Atlanta Wolf (anonymous) posted on
Atlanta Wolf
They are clearly trying to reduce deposits. My email today reads:

We would like to thank you for your continued loyalty as a Flagstar account holder. Because Flagstar has typically offered one of the highest rates in the nation, as a courtesy to you, we want to let you know that the interest rate on your Flagstar Internet money market account has decreased to 0.50% APY, effective December 15, 2009.

If you wish to make a withdrawal, just complete and send the attached form no later than December 31, 2009, or call (800) 642-0039 to speak with an Internet banking representative. We’ll either mail a certified cashier’s check or wire-transfer the proceeds to the account of your choice.

As always, we appreciate your loyalty and your business.

Have a safe holiday season.

Internet Banking Management and Staff

Comment #4 by Anonymous posted on
Can't we use ACH to pull out of Flagstar ?

Comment #5 by Anonymous posted on
You rarely see a bank offer you to take your money out of the company. Since MI has been hit particularly hard by auto industry, I avoided putting any money with them even though they offered rates above the others.

Comment #6 by Anonymous posted on
For most banks, ACH out from an external bank (e.g., Alliant or Ally) is the fastest/cheapest (no loss of interest or even double dips, if done smartly) way to get money out of those banks.

Comment #7 by Anonymous posted on
Yep. I also got a message offering me the great "opportunity" of withdrawing my high-yield CDs bought years ago. I hope this is not a sign of impending closure?

Comment #8 by Anonymous posted on
Today they called me about a renewing CD. They wanted to know what they could do to keep my money with them I just had a bad customer experience trying to get a bonus rate on a CD a few months back and just don't want to deal with them anymore

Comment #9 by Anonymous posted on
I would dfinitely take my money out of Flagstar. They are rated D- on They are not too big to fail. Yesterday they announced an $80 million loss for the first quarter 2010.Your money is insured up to $250,000. by the FDIC, but the interest you earned is not. Plus the hassle to get it out after it fails. Their stock today is only 63 cents a share!

Comment #10 by Anonymous posted on
Flagstar offers 1.06% APY now on this account and 1.20% APY for over $100k.