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Do I Have to Pay Taxes on CD Earnings?Did ebank cut rates to comply with the FDIC's rate caps?
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POSTED
ON BY Ken Tumin
As I was updating my list of rates today, I noticed ebank slashed many of its rates. This had me wondering if the FDIC's new Weekly National Rates and Rate Caps may have already had an effect. As the FDIC stated, the new rate restrictions don't take effect until 2010. However, there is pressure on less than well capitalized banks to start complying. As the FDIC stated:
Ebank is a long-time internet bank that has a history of competitive rates, but they don't have a history as a financially strong bank. They're listed in this TheStreet article as one of the remaining undercapitalized Georgia banks and thrifts as of December 31, 2008. Plus, they have the lowest rating for safety and soundness at both BauerFinancial and Bankrate.com. We don't know if they're on the FDIC list of less than well capitalized banks since the FDIC keeps this list confidential. According to the FDIC, there are only 248 banks that are less than well capitalized as Q1 2009, out of more than 8,200 banks nationwide. So ebank may not be on the list, but there seems to be a reasonable chance that ebank is one of these 248 banks.
Here's how ebank's rates have recently changed along with how the new rates compare with the FDIC's rate caps. Note, the FDIC's rate cap is 75 basis points higher than the national average rate as measured by some third party. The following rates are from the FDIC's 6/01/09 rate table, ebank's rates page as of 6/06/09 and ebank's rates page as captured by Google on 5/16/09.
Ebank did cut its CD rates to below (or equal to) the FDIC rate caps. However, their liquid account rates weren't cut low enough. So it's possible that ebank didn't take the FDIC table in consideration for its new rates. It may be just an interesting coincidence.
The most important point I want to make is that this is an example of the problem with the FDIC rate restrictions. I can understand the FDIC wanting to prevent troubled banks from offering extremely high rates, but the FDIC needs to add a table for internet accounts. The low-cost structure of the internet allows banks to offer much higher deposit rates, and we don't want any of our internet banks to be forced to cut rates to unreasonable levels.
Other recent posts related to this issue:
The rule is effective January 1, 2010. Effective immediately, the FDIC will regularly publish national rates and caps, and permit institutions that are less than well capitalized to avail themselves of these rates as a safe harbor for complying with the statutory interest rate restrictions.
Ebank is a long-time internet bank that has a history of competitive rates, but they don't have a history as a financially strong bank. They're listed in this TheStreet article as one of the remaining undercapitalized Georgia banks and thrifts as of December 31, 2008. Plus, they have the lowest rating for safety and soundness at both BauerFinancial and Bankrate.com. We don't know if they're on the FDIC list of less than well capitalized banks since the FDIC keeps this list confidential. According to the FDIC, there are only 248 banks that are less than well capitalized as Q1 2009, out of more than 8,200 banks nationwide. So ebank may not be on the list, but there seems to be a reasonable chance that ebank is one of these 248 banks.
Here's how ebank's rates have recently changed along with how the new rates compare with the FDIC's rate caps. Note, the FDIC's rate cap is 75 basis points higher than the national average rate as measured by some third party. The following rates are from the FDIC's 6/01/09 rate table, ebank's rates page as of 6/06/09 and ebank's rates page as captured by Google on 5/16/09.
Account Type May APY New APY FDIC 6/1/09
Rate Cap
ePremium Chk $10K+ 2.00% 1.30% 0.89%
ePremier MM $100K+ 2.00% 1.75% 1.21%
eSavings 1.50% 1.00% 0.97%
3-month CD 1.45% 1.35% 1.42%
6-month CD 2.00% 1.50% 1.70%
12-month CD 2.40% 2.00% 2.00%
2-year CD 2.60% 2.10% 2.29%
3-year CD 3.00% 2.50% 2.53%
4-year CD 3.00% 2.50% 2.78%
5-year CD 3.00% 2.50% 2.94%
Ebank did cut its CD rates to below (or equal to) the FDIC rate caps. However, their liquid account rates weren't cut low enough. So it's possible that ebank didn't take the FDIC table in consideration for its new rates. It may be just an interesting coincidence.
The most important point I want to make is that this is an example of the problem with the FDIC rate restrictions. I can understand the FDIC wanting to prevent troubled banks from offering extremely high rates, but the FDIC needs to add a table for internet accounts. The low-cost structure of the internet allows banks to offer much higher deposit rates, and we don't want any of our internet banks to be forced to cut rates to unreasonable levels.
Other recent posts related to this issue: