When a bank fails and the FDIC arranges for another bank to take over, depositors often lose out. All of their insured deposits are safe, but if they have CDs, rates have often been cut. Depositors are free to make a penalty free early withdrawal, but it's unlikely that depositors will be able to find CD rates as high as their old CDs with the failed bank.
Depositors don't always lose out when a bank fails. The latest example is ShoreBank's closure. On August 20th, regulators closed ShoreBank, and a new bank assumed all deposits. That new bank is Urban Partnership Bank. It's a newly-chartered bank that was formed by a consortium of major U.S. financial institutions and philanthropic groups.
Urban Partnership Bank has kept ShoreBank Direct and its online savings account. In addition, the new bank recently increased the savings account rates:
- 1.20% APY for balances under $100K (was 1.03% APY)
- 1.25% APY for balances of $100K and above (was 1.19% APY)
These new rates are nothing to get excited about, but it's nice to see a rate hike in this low-rate environment. It appeared that before the closure, ShoreBank had been considered a "less than well capitalized" bank, and this resulted in the bank being required to stay under the FDIC rate caps. As of 8/30/10, the FDIC shows a money market rate cap of 1.02% for balances under $100K and a rate cap of 1.16% for balances of $100K and above. I still think it's unfair that the FDIC doesn't have a separate category for internet accounts and reward checking accounts. Rate caps for these accounts should be higher than the ordinary savings accounts and checking accounts.
With the new bank, there is no longer any capitalization issues, and the bank should no longer be constrained by the FDIC rate caps. It's nice to see the bank was quick in raising the rates. ShoreBank Direct's savings account had been a rate leader since it was launched in 2007, and it remained a rate leader through 2009. It was in January of 2010 that the rates plummeted (likely due to the FDIC rate caps). Please refer to my ShoreBank Direct savings account review for more account details.
Urban Partnership Bank now has an entry in the FDIC database (FDIC Certificate # 59051).
Other Internet Savings Accounts
You can find higher online savings account rates, but they're not a whole lot higher. As of 8/30/2010, one of the best is at Sallie Mae Bank which has a no-minimum savings account with a 1.40% APY. You can get as high as 2.15% APY at SmartyPig but this has a $50K balance cap. For other high-yield savings accounts, please refer to the savings account rates section of DepositAccounts.com.