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Series EE Savings Bond: Values and What to Know FDIC is Now Forcing Rate Cuts to Reward Checking Accounts
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POSTED
ON BY Ken Tumin
I received confirmation that the FDIC's new rate cap rules are starting to impact reward checking accounts. In May the FDIC issued a final rule "to prevent banks that are less than well capitalized from soliciting deposits at interest rates that significantly exceed prevailing rates." The FDIC now publishes weekly national deposit rate averages and rate caps that will be used to enforce this new rule. As I explained in this May post there was concern about this new rule affecting reward checking account rates. It's now happening. A reader forwarded me the following email she received from Libertad Bank which had been offering a 3.50% APY nationwide reward checking account:
Libertad Bank had received a cease-and-desist order in August 2008. Early this year, Libertad's CEO submitted this long letter against this rule. His letter described the problem of this rate restriction rule:
Libertad CEO also described why reward checking accounts needed to be treated differently. A BancVue representative also submitted a letter that asked the FDIC to treat reward checking accounts differently. The letter gave a lot of stats about why reward checking accounts should not be considered high-cost accounts (I'll go into this in more detail in a future post).
Another bank that appears to have been affected is The Bank of Georgia. It just recently slashed its reward checking rate from 4.01% to 0.88%. I just noticed that 0.88% is currently the FDIC's rate cap for interest checking accounts. A reader commented that he was told by a CSR that the cut had to due with the FDIC's cease-and-desist order.
I wonder if this might have been the reason for Charter Bank's major rate cut. I can't find any public enforcement orders against them, but based on their financial ratings (2 stars at BauerFinancial and 1 star at Bankrate.com), it could explain the huge rate drop from 4.01% to 1.25%.
If you're looking to open a reward checking account, you'll want to know if your bank is less than well capitalized. The FDIC does not disclose its official list of problem banks. However, you can get an idea if a bank is likely to be in this situation by checking if they have any public enforcement actions against it. The CalculatedRisk Blog is maintaining an "unofficial list of problem banks" that includes all public enforcement actions. To check on a bank's financial health, refer to the ratings databases at Bankrate.com and at BauerFinancial. Also, these rate caps don't apply to credit unions, so that's one advantage of choosing a reward checking account at a credit union rather than at a bank.
To find reward checking accounts around the nation or to learn more about these accounts, please refer to my High Yield Checking website.
Dear Libertad Bank Amazing Checking Customers,
Unfortunately with all the new banking regulations being passed, the Federal Deposit Insurance Corporation (FDIC) has decided to implement a new rule that effectively limits the interest rate we can pay on our Amazing Checking Account.
Because of this new rule; effective at the end of the November Amazing Checking account cycle we will be lowering the interest rate on our Amazing Checking account to 0.75% APY regardless of account activity. While we are very disappointed that the FDIC has decided to implement this new rule and we strongly disagree with it, the bank believes this will be only a temporary limitation and that by the middle of next year the bank will once again be able to offer its Amazing Checking account with its normal interest rates.
If you would like to earn a higher interest rate on your funds during this interim period, I would encourage you to consider opening or transferring a portion of your deposits to a Money Market account with the Bank.
Libertad Bank is a Texas State Savings community bank. Libertad Bank has not accepted, and will not accept, any tax payer ‘bailout’ money. Libertad Bank is strongly capitalized, does not have any sub-prime mortgages, and its depositors’ funds are FDIC insured to the maximum allowed by law. During these tumultuous times in financial regulatory ‘reform’ we encourage our customers to be informed about the changes and proposed laws currently being considered in Washington DC, and to understand the full impact on their own personal and family finances of ‘reactive regulation’ that is being created to limit the past actions of a few bad big banks, but is being applied to all banks.
Libertad Bank had received a cease-and-desist order in August 2008. Early this year, Libertad's CEO submitted this long letter against this rule. His letter described the problem of this rate restriction rule:
I am an executive of a financial institution that is currently subject to Part 337.6 rate restrictions. While the institution I work for has capital ratios that would easily classify the institution as well capitalized if measured by those ratios, the institution previously consented to a written agreement with the FDIC that included a capital maintenance provision, and it is therefore classified as 'adequately capitalized' regardless of its capital ratios, and is therefore subject to Part 337.6 rate restrictions.
Libertad CEO also described why reward checking accounts needed to be treated differently. A BancVue representative also submitted a letter that asked the FDIC to treat reward checking accounts differently. The letter gave a lot of stats about why reward checking accounts should not be considered high-cost accounts (I'll go into this in more detail in a future post).
Another bank that appears to have been affected is The Bank of Georgia. It just recently slashed its reward checking rate from 4.01% to 0.88%. I just noticed that 0.88% is currently the FDIC's rate cap for interest checking accounts. A reader commented that he was told by a CSR that the cut had to due with the FDIC's cease-and-desist order.
I wonder if this might have been the reason for Charter Bank's major rate cut. I can't find any public enforcement orders against them, but based on their financial ratings (2 stars at BauerFinancial and 1 star at Bankrate.com), it could explain the huge rate drop from 4.01% to 1.25%.
If you're looking to open a reward checking account, you'll want to know if your bank is less than well capitalized. The FDIC does not disclose its official list of problem banks. However, you can get an idea if a bank is likely to be in this situation by checking if they have any public enforcement actions against it. The CalculatedRisk Blog is maintaining an "unofficial list of problem banks" that includes all public enforcement actions. To check on a bank's financial health, refer to the ratings databases at Bankrate.com and at BauerFinancial. Also, these rate caps don't apply to credit unions, so that's one advantage of choosing a reward checking account at a credit union rather than at a bank.
To find reward checking accounts around the nation or to learn more about these accounts, please refer to my High Yield Checking website.