Competitive CD Rates at AloStar Bank - Available Nationwide

When banks take over failed banks, they sometimes offer good deals to keep the depositors. This happened when BB&T took over Colonial Bank and when BBVA Compass took over Guaranty Bank. A recent example is the new bank AloStar Bank of Commerce which took over the failed Nexity Bank on April 15th. AloStar Bank continues to offer its products online just like Nexity, and there are a couple of rates that are competitive. These include a 1.31% APY 1-year CD and a 1.12% APY 6-month CD. Minimum deposit is $1,000. For terms of 1-year and shorter, the early withdrawal penalty is 1-month of interest on the principal amount withdrawn. These rates are listed in the bank’s rates page as of 5/19/2011.

These aren’t great deals, but in today’s rate environment, they are competitive. AloStar’s 3-month CD rate is actually also competitive with a 0.81% APY, but I don’t see any advantage of 3-month CDs over internet savings accounts.

I confirmed yesterday that the new bank is still accepting deposits nationwide. Their application process is not the best. When you submit the online application, they will first review it for approval, and if it’s approved, they will send you an email with your confirmation number that can be used as an account number if you want to fund the CD with a wire transfer. The only other option to open the CD is to mail in a check. The rate locks only at the time they receive the funds.

When the CD matures, they require written authorization to close the CD. This can be done by fax or mail. The two main options to receive the funds is a wire transfer ($20 fee) or a mailed check.

Nexity CD Account Holders

Those who had CD accounts at Nexity before it failed may be wondering about what will happen with the CD rates. The bank that acquires a failed bank is allowed to reduce rates on existing CDs of the failed. However, the new bank must allow for a penalty-free early withdrawal. With the rate environment so low, it has been common for banks to cut rates when they acquire failed banks. AloStar Bank still hasn’t decided. According to the bank’s letter to depositors:

At this time, the interest rate on your certificate of deposit will remain the same. We will be reviewing Nexity Bank accounts over the next few months, and you will be notified well in advance when there are changes to your certificate of deposit rates. In the months ahead we plan to offer special incentives and even more competitive rates for our depositors.

AloStar Bank Overview

AloStar Bank of Commerce is a newly-chartered bank that came into existence when it acquired Nexity Bank on April 15, 2011. This was described in the FDIC press release that announced the closure of Nexity Bank. AloStar Bank has an entry in FDIC database (FDIC certificate # 59060), but the FDIC doesn’t have any financial reports from the bank.

How It Compares to the Best Nationally Available CD Rates

The best 6-month CD rate that’s available nationwide is 1.50% APY at Connexus Credit Union, but this requires an active checking account. Without a checking account requirement, the best 6-month CD rate is only 1.06% APY at Aurora Bank. The best 1-year CD rate is also at Connexus Credit Union with a 1.75% APY, and like the 6-month CD, this also requires an active checking account. Without the checking requirement, the best 1-year CD rate is 1.41% APY at Melrose Credit Union.

If you’re looking for short-term CDs, it’s hard to beat the Salem Five Direct savings account promotion that guarantees a 1.25% APY until April 1, 2012. Another good option is Ally Bank’s 11-month No-Penalty CD that can be made into any short-term CD. That rate is currently 1.10% APY.

The best nationally available CD deal for terms from 5 months to 3 years continues to be Ally Bank’s 5-year CD that has the mild early withdrawal penalty of 60 days of interest. One note about this CD is that the yield just fell yesterday from 2.40% to 2.39% APY, but it still remains a very good deal (see my Ally Bank CD review).