So when interest rates are falling, you may want to consider the health of a bank if you're wanting to purchase a CD, especially a long-term CD. If you open a 5-year CD at 5.00% and the bank goes under after one year, the receiver bank may decide to close the CD. At that time, you may be lucky to find a 3% CD. You would have been better off choosing a 4.50% CD at a healthy bank that had much less risk of failing.
On the other hand, a bank failure could be advantageous if rates are rising. ING Direct allowed Netbank customers with CDs to close them without any penalties.
Bank failures have been so rare before Netbank in the last few years, that this analysis may be a waste of time. However, with the current credit crisis, we may see many more bank failures in the year to come. So it may be something worthwhile to consider.
For more information on Netbank's closure and comments of many readers who had Netbank accounts, please refer to my follow-up post on Netbank's closure.
Also, for information on the FDIC and NCUA deposit insurance, please refer to the following posts: Extending FDIC/NCUA insurance over $100K and Facts about FDIC/NCUA.
Resources to review the health of banks and credit unions:
Latest financial data of the banks and credit unions are available via: