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What to Know About Treasury Inflation-Protected Securities (TIPS)Indymac Bank's High CD Rates and Questionable Future
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ON BY Ken Tumin
Update 7/11/08: FDIC puts Indymac Bank into conservatorship. See post for more details.
The LA Times published this blog article with the title "For opportunists, IndyMac CD yields are a bonanza" With all the bad publicity, Indymac has to keep rates high if it wants to maintain its deposits. Also, due to the regulatory action which I reported on in this Monday post, Indymac is no longer allowed to accept brokered deposits. So this is another reason they're being forced to offer high rates. Many of Indymac CD rates are way above the rates of the competition. Here is what the article says about this:
In addition to the risk of having the CD cashed out early, there's also the question of the time it would take to receive your money. I described this and other issues in my Monday post.
Indymac CD rates have recently been changing every few days. The last change was early Tuesday when they raised their 12-month CD yield to 4.45% APY. A reader commented in that post that he was able to move a matured Indymac CD into this 4.45% CD. So you may be able to get around the new money requirement for these specials.
Indymac's future does appear bleak. This LA Times article is titled "Analysts have zero hopes for IndyMac". Two analysts interviewed in the article have cut their price targets for Indymac's stock to zero. Indymac's shares closed at 38 cents today (down from 44 cents yesterday and down from $50.11 when it peaked in 2006).
To see what's likely to happen when a bank fails and another bank acquires the deposits, you may want to review this post on NetBank's failure. The new bank that takes over the deposits is free to close the CD, but they should not charge you any penalties.
Another reader in the Tuesday's post described his experience with NextBank which failed in 2002. In that case, the FDIC was not able to find another bank to take over NextBank's deposits. So they sent depositors checks for their insured money. Here's what the reader described:
As I mentioned in this post on ANB Financial's failure it's important to keep both your principal and interest below the FDIC limits.
Thanks to the reader who mentioned this LA Times article and the reader who provided his experience at NextBank.
The LA Times published this blog article with the title "For opportunists, IndyMac CD yields are a bonanza" With all the bad publicity, Indymac has to keep rates high if it wants to maintain its deposits. Also, due to the regulatory action which I reported on in this Monday post, Indymac is no longer allowed to accept brokered deposits. So this is another reason they're being forced to offer high rates. Many of Indymac CD rates are way above the rates of the competition. Here is what the article says about this:
For savers, the beauty of federal deposit insurance is that they can't lose money if they stay within the insurance limits. Even if IndyMac should fail, the worst that could happen is that your CD would be cashed out early by the FDIC.
In addition to the risk of having the CD cashed out early, there's also the question of the time it would take to receive your money. I described this and other issues in my Monday post.
Indymac CD rates have recently been changing every few days. The last change was early Tuesday when they raised their 12-month CD yield to 4.45% APY. A reader commented in that post that he was able to move a matured Indymac CD into this 4.45% CD. So you may be able to get around the new money requirement for these specials.
Indymac's future does appear bleak. This LA Times article is titled "Analysts have zero hopes for IndyMac". Two analysts interviewed in the article have cut their price targets for Indymac's stock to zero. Indymac's shares closed at 38 cents today (down from 44 cents yesterday and down from $50.11 when it peaked in 2006).
To see what's likely to happen when a bank fails and another bank acquires the deposits, you may want to review this post on NetBank's failure. The new bank that takes over the deposits is free to close the CD, but they should not charge you any penalties.
Another reader in the Tuesday's post described his experience with NextBank which failed in 2002. In that case, the FDIC was not able to find another bank to take over NextBank's deposits. So they sent depositors checks for their insured money. Here's what the reader described:
The FDIC instantaneously sent me a check for the principal. But the accrued interest put me over the FDIC limit. I wrote it off. The interest rate was so high I still had a good rate of return even with loss of that final interest. But the FDIC did NOT write it off and they did not forget me. Five years later they were still sending me my money back. They sent many small checks, but when added up those checks nearly equal the entire amount of my "lost" interest.
As I mentioned in this post on ANB Financial's failure it's important to keep both your principal and interest below the FDIC limits.
Thanks to the reader who mentioned this LA Times article and the reader who provided his experience at NextBank.