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Deferred Interest On 3 Year Cd

hank
  |     |   110 posts since 2016

I got a jumbo cd at greater Hudson bank 3 percent for 3 years. They told me that jumbos are treated differently than non jumbos and the interest is credited at the end of the 3 years, which was ok with me. Now I am wondering if the bank goes bust, is my non credited insurance insured?

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me1004
  |     |   1,379 posts since 2010
You mean your non-credited "interest," not "insurance." You will have to read your disclosures. Some banks do not pay interest that is not already posted, others pay all accrued interest, posted or not. If it accrues, then I know the FDIC pays out accrued interest. Whether the interest accrues would be the key issue here.

I'm not sure how FDIC rules might play into this if the bank does not accrue interest, whether the FDIC would calculate and pay interest that would have been accrued, since it would not be you choosing to close.

Still, the FDIC would almost certainly be merging this bank into another one, and your CD could continue with that new one. This is not a bank of a size that would present an issue for the FDIC to find a buyer. You would most likely be able to continue the CD to maturity, or they might even give you the option to close it at that time, which you would choose only if that closure included all accrued interest.
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hank
  |     |   110 posts since 2016
Yes, I must have been half asleep when I posted. You are right I meant interest. And they told me the interest is accrued but not credited to the account When I go to the website they don't list any interest but I contacted them and they told me the accrued interest. thanks
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Ratesaver
  |     |   187 posts since 2013
hank, another issue would you have to pay taxes on the accrued interest yearly...Or is it that you will have to pay 3yrs int. when the bank adds it to your cd... Since it is accrued I assume you will get a 1099 at yrs end or nothing at all... I don't know how this will play out... I have a similar situation as I have a 3yr cd and the first yr because I opened it in early Jan. for that yr I got no 1099 however the following yr I got one after they added the 1yr interest on the cd... I called and that's it what they said was ok. I don't like it but have no way of changing it now...They did say it accrues monthly however …. Still don't like it
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hank
  |     |   110 posts since 2016
they told me it would not be reported to the irs until the interest posts at the end of the 3 years
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CTM
  |     |   179 posts since 2010
One again, a bank CSR/teller/salesperson/manager is misinformed.
What a shock!

What they told you is correct if the instrument has a term of 1 year or less. This is how you can move taxable interest into the next tax year with T-Bills or CDs that pay at maturity. For example, Ally has this feature on their short-term CDs.

From 2017 IRS Publication 550, page 14 ...

If you buy a CD with a maturity of more than 1 year, you must include in income each year a part of the total interest due and report it in the same manner as other OID.
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hank
  |     |   110 posts since 2016
thank you ctm. I contacted the bank. They said I wouldn't get anything until the end of 3 years, but they told me they can turn on the "optional oid statement" which is not currently turned on . I would have had no idea if I didn't read your post. If I knew this would be such a pain I would have divided it up so it wasn't one large cd. The smaller cds they credit interest yearly
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CTM
  |     |   179 posts since 2010
I hope this is the last time you do business with Greater Hudson Bank, no matter how good the interest rate seems.

What you describe is a fundamental misunderstanding or misrepresentation.
How can the OID statement be "optional"? Do they expect you to know how to calculate OID on their product(s)? Since they furnish 1099-OID information to the IRS, you think they would share it with you. ;-)
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hank
  |     |   110 posts since 2016
yes, it makes no sense. where does the oid go on the tax return? It wouldn't go under interest, would it?
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CTM
  |     |   179 posts since 2010
OID gets reported to you on a 1099-OID.

It is treated as interest and reported on Schedule B
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