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Banking News: GMAC, CDARS and CDs at Failed Banks


Some news of interest for savers:

Latest on GMAC's Financial Issues

This article at CNN reports that GMAC is still waiting for the FDIC to give it the go-ahead to sell low-cost debt insured by the FDIC as part of the Temporary Liquidity Guarantee Program. As I mentioned in my last GMAC Bank post, the Federal Reserve allowed GMAC to become a bank holding company in December. It also received $5 billion under the Treasury's bailout fund. In addition to the help GMAC is receiving from the government, deposits at GMAC Bank appear to be helping. The article mentioned that deposits grew by one-third to $19.2 billion from the end of 2007 to 2008.

Certificate of Deposit Risks at Failed Banks

Deposits at GMAC Bank are FDIC insured, so if you stay under the FDIC limits, there's no risk to your principal or accrued interest. However, if you have a CD, there is a risk that you could lose the rate lock. This article from OregonLive explained what happened to depositors with CDs at Silver Falls Bank that failed on February 21st. The new bank that acquired Silver Falls Bank deposits has decided not to honor the original CD rates. According to the article they're "slashing interest rates from as much as 4 percent to 1 percent or less."

For many of the bank failures this year, the FDIC has stated that the assuming bank may decide not to honor the original interest rates. According to the article "the institutions that take over are free to reset interest rates, regulators say, because they're essentially pulling the assets out of bankruptcy." On the plus side, the assuming bank is required to notify the customers of any rate change and allow them to cancel the CD agreements without penalty. One reader mentioned having this happen to him at a Georgia bank closure. The main issue he had was that it took a few weeks before he received notification of the lower rate, and the new rate took affect the day after the closure. So if your bank closes, it's wise to find out as soon as possible what the new rates will be.

Credit for finding this news on Silver Falls Bank goes to BestCashCow.

Using CDARS to Cover Large Deposits

For those with large savings, the CDARS program is way to insure deposits over the FDIC limits. It basically spreads your deposits across multiple banks. This Courierpress article has an overview of CDARS. The main problem that I've found with CDARS is that the rates tend to be lower than regular CDs. You can find examples of rates of CDARS at GCF Bank and at AARP Financial Savings Center. As you can see, the rates are much lower than what I list in my weely rate summary.

Previous Comments
  |     |   Comment #1
I just applied to open a GMAC savings account a few moments ago. Is it safe to go ahead and depositing money or should I just bail out now?
Banking Guy
  |     |   Comment #2
Unlike CDs, the savings accounts have no risk at all since there's no rate lock. Just make sure you keep under the FDIC limits (which is a good idea at any bank.) I have both a savings account and a money market account at GMAC Bank. They remain my favorite online bank due to their easy-to-use and fast ACH bank-to-bank transfer service. Even if GMAC goes under, that doesn't necessarily mean GMAC Bank would also go under (see post).
  |     |   Comment #3
The current FDIC limit of $250k per depositor expires December 31st. So, it would be prudent to limit your risk to 100k per depositor on CDs that mature after 12/31

Although chances are that the FDIC's revised limits will stay beyond this year, but why take a chance.
  |     |   Comment #4
For anyone opening CDs with any bank or credit union they would be best advised to ensure that not only the deposit itself but also the interest accrued for the WHOLE period of the CD will remain below $100K, since there remains every chance the temporary $250K limit will NOT be extended beyond Dec 31st, 2009.
  |     |   Comment #5
i wouldn't put any money with any GM (General Motors) account. anything to do with GM has been negetive and they haven't done anything to improve that. GM has been puting out an inferior product for years and they are now seeing what happens.
  |     |   Comment #6
Hey Anonymous at 7:49 PM, April 15 2009... please explain what GMAC Bank has to do with GM. We're all dying to hear your genius.
  |     |   Comment #7
Anonymous @6:03 AM, April 16, 2009 -


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