So would it be dumb to buy a CD from Indymac at approx. 5.5% yield? It is federally insured, so the money can't be lost, but if the bank goes under, might it be a very long time to get the money out?
Others may disagree with me, but if this product suits your needs, I would go for it. I was both the holder of a mortgage and a CD at Goldome Bank when it failed in 1991 (part of the "savings and loan crisis" of that era). The transfer of assets to another bank--Key Bank--was done, literally I believe, overnight. As I recall, before I knew what had taken place I was mailed new payment books, statements, account numbers, etc. There was no time for any concern, no delay. It was a done deal. At this point, I'm a tad more concerned (but only a little) about the cash holdings in my core account at Fidelity (backed as it is by commercial paper) than I am about the financial status of the bank(s) where I have FDIC-insured CDs.
The FDIC takes very strong measures to have your insured deposits available the next business day. If there is an assuming institution (another bank buying the one going under) the transfer will probably be immediate and as mentioned, happen before you are even aware. If there is no assuming institution, the FDIC should step in as receiver and typically a claims agent will be available at the bank to meet with so if you want to withdraw your money you could, but it really is not necessary. For the uninsured deposits (and the amount varies based on types of accounts and ownership) you will receive a "claims certificate" which will entitle you to a pro rata share of whatever the FDIC can recover above the costs. The FDIC does not usually collect 100% so it is best to ensure your account value is covered.d(Insurance)/dT
If there is no assuming institution, the FDIC should step in as receiver and typically a claims agent will be available at the bank to meet with so if you want to withdraw your money you could...What if the CD was purchased through a broker?I currently have two CD's at IndyMac that were bought in two different accounts at my brokerage (one in my wife's IRA - one in my Roth IRA). One matures in Oct 2007 - the other in May 2008.Would they be cashed-out early? Or... ?
DoLoop"What if the CD was purchased through a broker?"The brokered CD's are really no different. The broker is usually (as opposed to the bank) maintaining the customer records-accounts. When the FDIC steps in as receiver, they will obtain the information from the broker. The broker should confirm you have two IRA accounts ($250,000 insurance each) "Would they be cashed-out early? Or... ? "With no assuming institution you will receive the cash for the deposit and accrued interest through the bank failure date up to the insured amount, and a receiver certificate (IOU) for the uninsured. d(HTH)/dT
Thank you, DrTarr. Apparently I don't have to be concerned about getting my money back. (and, while it is a goodly amount, it's less than $250,000).
Thanks very much to everyone who posted clear, concise answers to my question about the Indymac CD and whether it might go unpaid for a long time in the event of the issuer going under. Now I feel confident about a purchase.
The worst that can happen is that if the Feds find another bank to take it over, they can call the CD and issue a new one at a lower rate; however, you have the right to withdraw the money. This happened to me in the S&L/Banking crises, and I was then offered at new longer-term CD at a righer rate than I was getting before. This rate was 7% on a 7 yr CD, and I never regretted it. I've also had it happen that a new financial insitution took over and just continued the CD.The Fed may take it over while a new financial insitution is found, in which case, you may have no change. I've had this happen more than once.I've never had an experience where the FDIC insurance went into effect, but I've heard that it can be something like a year to get your money. I've heard others say they got it very quickly. But I suspect that an insurance payoff is unlikely to be needed. More likely, the Fed will lower the price of the insitution till it is attractive to a buyer.brucedoe
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