Comment from someone on the old days of the S&Ls when your CDs got taken over by the new bank after a failure.
—-
Seeing I was a deposit broker in the S&L days and placed deposits in thousands of banks I buy ‘most’ insured CDS without thought. Last week Saw CDs from Signature Bank at 6% for six months. I did NOT buy them! But they were under par (.99) I figured if they go non interest bearing for stretch they diff between 99 and 100 was equivalent to 80 days of interest. In general even inboard cases most FDIC claims are made in less then 2 weeks.
And FRC has been in with some well priced secondary paper. Same story. Rate not as strong but still excellent. Discounted to face. The Q there was do I want my friends to get buyers shock if FRC too goes belly up? Of course we are insured for P & I but how the FDIC handles depositors can vary significantly.
- They transfer it to new bank …no change….
- They transfer it to new bank and bust the rate. (you can then get out no surrender charge)
- They bust all the CDs and test the FDIC insurability of each account. Here it can make a big diff if you are direct w bank, tor if you are in pooled securitized CD, or if you are in any sort of nominee account.
- They transfer some of the deposits to Bank XYZ, some to Bank XXX and threat depositors differently depending on which place your money goes.
When they break a CD the money most often stops accruing interest. AND whoever is handling the affair is overloaded beyond belief. It can take a long time to get monies out of a CD liquidation.
So a primary risk is…you hope to keep a high rate and they send your money back OR rates are up and you hope they break the CD but do not. And hold the money until maturity.