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FDIC is Now Forcing Rate Cuts to Reward Checking Accounts


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:

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.
Related Pages: Austin Capital Bank, Austin

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  |     |   Comment #1
Another idea is to use a credit union reward checking account. As far as I know, the NCUA is not imposing a similar rule on credit unions.
  |     |   Comment #2
This just makes me S I C K! Communism 101. WAKE UP PEOPLE, we have GOT to take our country back before it is turned into a dictatorship. Vote all the morons out and start fresh. The Feds do not want you to save your money, they want you in more risky investments and people are not wanting to go there so what do they do? Make a governmental control over interest rates..... I am mad as hell at how far we as a country have let them go. Sickening....
  |     |   Comment #3
Uh.... I thought that we did just elect new people into the government? Maybe the terms should last like one month?
  |     |   Comment #4
Voting isn't going to get the job done. We need something a lot stronger.
  |     |   Comment #5
4:27pm.... We need to clean house in congress, a clean sweep would be good. As far as the president and his thugs.... they are the worst Socialists, Marxist, unethical group the US has ever had the misfortune of having lead us. I fear for what the US will look like in 7 more years if he gets re-elected.
  |     |   Comment #6
This is Government conspiracy against
the American people, shame on all who are conspiring against us. If there is something we can do, I will support such petition.
My theory is that FDIC gets its orders from Ben Bernanke, Ben gets his orders from wall street, Congress supports wall street and its powerful lobby, hence the people are irrelevant.
  |     |   Comment #7
Couldn't they re-characterize the accounts as money market or savings accounts to get around the .88% limit?
  |     |   Comment #8
The big banks are jealous of the small efficient banks, so they ordered FDIC to put an end to the small banks competition with them.

Since the big banks are to big to fail, they are calling the shots and FDIC, Bernanke and Congress listen.
  |     |   Comment #9
B.G. -- Thanks for a well-written report on an appalling situation.
  |     |   Comment #10
I wonder if the Washington Gestapo will be going after Credit Unions next ?
  |     |   Comment #11
In Muslim country they do not pay interest on idle money, that is coming here, watch out folks this administration will destroy the American way of life.
  |     |   Comment #12
Wow, there are a lot of unhinged people posting here. It's all a conspiracy against you by the evil socialist, Muslim Kenyan guy.

You may want to turn off Glenn Beck and learn to do some critical thinking for yourself.
  |     |   Comment #13
So many comments on this thread are off-topic and useless. They should be removed by the website moderator/blogger.
  |     |   Comment #14
Look at all of the sheople fighting over 0.88% interest rates.

Reward checking accounts? Get the hell out of here! Too much work for too little return.

You know how to make the interest rates jump INSTANTLY overnight? JUst stop putting your money into these banks. QUIT GIVING THEM YOUR MONEY FOR 0.88% APY interest rates! Try that....maybe then they'll see the SHEOPLE aren't bringing them their money and JUST maybe they'll raise interest rates and just maybe you won't need "reward" checking accounts.
  |     |   Comment #15
Why people are so ignorant and irrational??

Listen, cool down. The few examples given do not apply to most RCAs, which are well-capitalized. Maybe it will have an effect to those banks eventually; but not yet.

So... take a walk and cool down!!
  |     |   Comment #16
The federal government set maximum interest rates on savings accounts (and banned all interest payments on checking accounts) until 1986. This applied to all banks, not just financially unstable banks.

That must mean that presidents such as Dwight Eisenhower, Richard Nixon, Lyndon Johnson, and Gerald Ford must have been staunch Communists! Little did we know at the time.
  |     |   Comment #17
Be reasonable, folks. Even for banks that received C&D, they only lower their rate slightly to be complaint: For example, Community Bank (Mass) reduce their rate from 4.51% to 4.01%.

Like the OP, just look for a bank that is well-capitalized. RCA is NOT dead!

And stop the off-topic political comments!!
  |     |   Comment #18
Correction for above post: compliant...
  |     |   Comment #19
Let me get this straight:

Investing in private enterprise through the stock market is basic COMMUNISM 101. Karl Marx was a strong advocate of the stock market?

But investing in government-guaranteed bank accounts is a free market capitalism?

Interesting. I would have thought it was the other way around.

People, if you are upset about Communism, then go out and enjoy the free market. Invest your money in free-market capitalist enterprises like Enron. Don't go running to the safety of government-insured accounts.
  |     |   Comment #20
Bankers rule us - I hope you can see that now.

They can take your taxpayer's money when they need it, they can create fees to charge you for every aspect of your financial life, they can unilaterally increase the rates they charge you for interest on credit cards/loans while cutting interest rates they pay you for your money.

This government is complicit to their actions, because they are the enablers to the banking system.
  |     |   Comment #21
Speaking of Enron, I just saw discussing the meltdown that occurred with that company back in 2001. They used shady accounting techniques to prop up the stock share price. They essentially monkeyed around with the California power grid and tried to make themselves as the "greatest" company in the world. The old accounting firm of Arthur Andersen was taken down due to their association with Enron. They were a classic textbook example of a free wheeling company without any regulations. Banks want to operate like that too.
  |     |   Comment #22
Crikey! Had to check to see if I was reading some AOL posts. :::eyeroll::: I post here regularly, so this is certainly a bit of a detour. Anyhoo...

Wasn't the impetus for the FDIC to get banks to "cease and desist" stemming from the ****ups caused by the big banks? Think tax payer-sponsored bailouts. So, banks that were already risky to begin with and offering such high interest rates were, thereby, putting account holders in jeopardy, per se. Not officially, since the FDIC would be stepping in to bail them out.

Maybe I am way off base here....not sure. I knew RCAs were eventually going to go the way of the do-do bird.
  |     |   Comment #23
Bryan Cave law firm has good summary here:

  |     |   Comment #24
Some of you are missing the point, this is not only about the interest rates it is about a CONTROL and how it is done.
If FDIC can dictate interest rates, then this is no longer market economy but it is dictatorship.
The message that FDIC is sending out is anti competitive, anti free market, anti capitalistic and anti savers.
  |     |   Comment #25
I agree with the poster at 9:02 AM, November 18, 2009.

And would like to add this:
Low interest rates do not create jobs, but actually prevent creating jobs by eliminating competition and need for credit. It may sound illogical, but it is true, Bernanke is keeping the interest rates artificially low for almost 2 years and there are no job created since he started to lower the rates. The economy slowed even more down since the banks are no longer eager to lend at such low loan interest rates.
There is no profit when they lend at bellow 5% interest rates.

FDIC has no business dictating the interest rates period.
  |     |   Comment #26
To all of you who think that this is not an appropriate forum for politics, I would say this:

This is the best forum for political views, because we are not politicians nor are involved in politics actively and our viewpoint is true view of what and how our lives are impacted by the politicians, Congress and Government departments like FDIC.

Our view is true main street sentiment and all of you who don't like our view and posting here, get lost.
  |     |   Comment #27
The FDIC can only regulate interest rates at banks that have FDIC insurance. You are free to invest your funds in bonds, mutual funds, etc for whatever rate the market will support. The FDIC has no control over those interest rates.

Certain banks are in financial trouble and cannot afford to pay high rates. But they have FDIC insurance, so they have nothing to lose by paying out money they can't afford since the FDIC will be obligated to return the money to the depositors when they fail. Financially sound banks are still free to pay whatever rates they like.

You can't have it both ways. You can't have the FDIC responsible for bailing out mismanaged banks and ask the FDIC to do nothing when they see the management run the banks into the ground.

If you don't think the FDIC should be controlling the interest rates you get, then don't ask the FDIC to pay you back when the bank fails. Go out on the open non-FDIC insured market and get whatever you think you should be getting.

You want the government to take care of you and keep your money safe, but you want them to do nothing when they see the bank mismanaging it. You just want them to let the bankers do what they want without saying anything and then pay you back when your money is lost.
  |     |   Comment #28
To poster at: 9:36AM, you said:

"The FDIC can only regulate interest rates at banks that have FDIC insurance. You are free to invest your funds in bonds, mutual funds, etc for whatever rate the market will support. The FDIC has no control over those interest rates."

Your reasoning is not correct, all interest rates are connected, when Bernenke lowers rates, the rates of Bonds and mutual funds are impacted immediately, look in the historic charts and you will find relationship.

You said:
"Financially sound banks are still free to pay whatever rates they like."
Wrong again, if they pay more interest rates then the rest of the banks, they will be flooded with tons of money overnight from depositors and become immediately insolvent. FDIC will send them a letter to cease and desist or lower the rates at once to a par with the other banks or they will be closed.

You said:
"If you don't think the FDIC should be controlling the interest rates you get, then don't ask the FDIC to pay you back when the bank fails. Go out on the open non-FDIC insured market and get whatever you think you should be getting."

This is not logical, since the savers are paying for the FDIC insurance indirectly by not receiving the portion of the interest rates that they were to receive if they didn't pay the FDIC insurance, with other words, we already paid the FDIC premium when we deposited the money with the bank. The premium is the same if the bank pay you 1% or 10% interest makes no difference.
  |     |   Comment #29
To Anonymous at 9:36 AM, November 18, 2009.

You said that the bonds and mutual funds or MM funds or other funds are not connected with interest rates from the FEDs.

You are deadly wrong, all rates are connected. If Feds changes rates the price of the bonds changes immediately proportional to the cut or rise of the rates.
Mutual funds and MM react immediately as well, provided they are invested in cash or cash equivalency.
  |     |   Comment #30
This forum is about ... hello... "Bank Deals." Thus the on-topic posts should be on "How one can respond and strategize to such FDIC rules?"

As for whether FDIC should do this and should not do that; go on the street or congress to protest. Do not waste bandwidth here for something we, as investors and bank customers, have no control of (other than moaning and crying; lol).

Even forums like FWF smartly forbids political arguments since it is an endeless debates with no ground (conspiracy?? Come on; get real!) and no effects.

On topic, we plan to pay off mortgage if the RCA rates fall below 4%. Mutual funds are out since we do not really trust the stock market with our cash money. JMHO.
  |     |   Comment #31
Believe me, the FDIC is paying attention to the 337.6 response. They need to know what we the people think - and this is the perfect post to let your thoughts be heard.
  |     |   Comment #32
To Anonymous, at 11:24 AM, November 18, 2009.

Who you are to tell us to calm down and play dead!

If you are passive, ignorant and follower of the crooked Government, then don't read these posts.

This is the perfect medium to express our discontent with what we are served and pushed down our throats.

Are you supporting democracy or are you Obama fanatic and don't allow us free expressions.

We want educated and involved citizens to stand against this corruption and not play dead like you.
  |     |   Comment #33
Well said Anonymous at 1:13 PM, November 18, 2009.

The whole media is biased and will not report on the people's grievances.
The blogs are the only free media left to exchange our views and madness we are going through.

The Anonymous at 11:24 AM, November 18, 2009, I have to say this:
What "Bank Deals" you are talking about, there are no deals, we are fighting for miserable and pathetic 1-2% interest deals thanks to Bernanke and FDIC and wall street mafia conspiracy.
  |     |   Comment #34
First the Feds said to us:
"We don't save enough"
Now they are saying "There is to much money in the savings accounts".

Feds said we should spend more to perk the economy. If we buy something, most of the money we spent will go to China and the Government will borrow more to keep all those programs of give away alive. And the circle repeats itself on and on.
If we buy stocks, the crooks will make more money on wall street then we will.
Slowly but surely, we become poorer and poorer, thanks to the Government policies of not being accountable to anyone.
They treat us like bunch of unimportant crowd that does not belong in their future vision or plan.
Bernanke is thrashing the Dollar to perk the exports, I would say WHAT EXPORTS, there is nothing we can sell that the rest of the world does not have and theirs are cheaper than ours.
This is Government without long term plans, without accountability,
with wastefulness in every program they started and now they want full control of our lives.
Being outrages is a mild form to express my feelings.
  |     |   Comment #35
Help, the conspiracy-crazed crackpots are running amok in the comments to Banking Guy's blog posts!

Charges of "communism" (or are you squawking about "socialism" this week?), and calls for revolution... plus claiming that comments to posts on the Bank Deals blog are the ideal place to make your feelings known? LOL! Known to whom?

Wait, don't tell me, I can guess: BIG BROTHER is watching, right? Yeah, the government is monitoring all your blog comments. (If they really were wasting their time doing that, it would have started under the previous administration when they bulldozed Congress into allowing warrantless surveillance -- but let's not get distracted with facts.)

Oh, and I love how you bray about democracy and freedom of speech, then turn around and tell anyone who disagrees with your views to "get lost." What a bunch of hypocrites!

"Have fun storming the castle!"

Don't forget to pack plenty of teabags -- and to wear your aluminum-foil hat. Run along and play now so the grownups can get back to talking rationally about bank deals, interest rates, and other topics without the distraction of your paranoid ranting.
  |     |   Comment #36
The majority of posters here know what they are talking about.

"Snippy", you seem to be in the minority. Know where that says about you?
  |     |   Comment #37
In response to:
To Anonymous, at 11:24 AM, November 18, 2009.

  |     |   Comment #38
Let these meaningless political accusations die by themselves. A bunch (or just 1-2 with tons of psots; having nothing better to do) of abnormal drastic extremists are not worth even noting.

Yeah, FDIC is monitoring all the forums in the entire country to prudently set their interest-limiting policy... Kids' perspectives.

Go on with the best deal...
  |     |   Comment #39
Let's stop being the victims and decide what we are going to do.

These "victim" banks can change what they call their accounts. They can call them "Cash Rewards" accounts with "equivalent" interest rates.

This way the FDIC rules no longer apply.

The FDIC will make a new rules 1-2 years from now to stop this as well, however, we can make a new idea in 1-2 years to get around these rules.


There are surely some rewards checking bank CEO's reading this blog that have the power to change rules at there banks. Give them some ideas!
  |     |   Comment #40
I fear the only way to beat these criminals at their own game is to become part of the problem.

Get yourself some of that free money , unemployment, food stamps, hangnail compensation, while the $ can still buy something.

Savers are being raped and pillaged. Wall St paying record bonuses as a reward for causing most of the grief.

  |     |   Comment #41
The wisest approach is to help oneself; no politicians or bank CEOs are going to help us directly.

Look at the big picture, ask yourself what the controllables (certainly not cry communism or dictatorship) are?

My approach: list near-term and long-term options and conduct trade-offs. For example, near-term: Go with stable banks with good RCA rate history. Hang on to them until RCA gradually fades away to below 4%. Long-term: use cash to pay off some mortgage (ours is at 4.75%). Third, invest in some stable vehicle... to be researched.

Only kids cry wolf loudly to every changes and do/plan nothing about it.
  |     |   Comment #42
There are only a few Mass banks that received C&D order, all are still keeping about a rate of 3.5% -4%; we shall see how future holds for those banks. But no immediate impacts at all.
  |     |   Comment #43
I think those political animals are gone, along with the computer glitch:-)
  |     |   Comment #44
What computer glitch? Everything is fine from here for the past few days.
  |     |   Comment #45
Go read a few posts above this post from Ken (aka Banking Guy).
  |     |   Comment #46
No more response from those political kids, since most of those extreme posts were just from 1 (at most two) kids, who has nothing better to do but trolling.

Now they can not even locate this thread.

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