As many of my readers know, in addition to providing auto insurance, homeowner’s insurance and life insurance for the people in and around Ferndale, I also specialize in retirement planning and advocate saving for your future.

Today I have posted a column from The Detroit Free Press and columnist Susan Tompor. She writes about concerns related to CDs and potential pitfalls that might occur during investing in CDs–Marty O’Neill, Insurance Agent, Ferndale Michigan

 
BY SUSAN TOMPOR • FREE PRESS COLUMNIST • May 31, 2008

 
Putting money into an FDIC-insured certificate of deposit called a brokered CD could seem like a no-brainer. It’s insured after all, right?

But some savers found unsettling hurdles with so-called brokered CDs issued through one distressed Arkansas bank that brought in money from savers nationwide.

Federal regulators on May 9 closed ANB Financial National Association in Bentonville, Ark. It was the third closure this year of an FDIC-insured bank.

But more than two weeks later, many savers with the brokered CDs still do not have access to their money.

It is an unusual situation, but one worth talking about as savers push the limits to find more attractive interest rates and some banks run into financial troubles.

$1.6 billion left out of deal

ANB Financial, which had about $2.1 billion in assets, was the largest bank to be closed this year. Regulators blamed lax lending standards for construction and development loans.

Pulaski Bank and Trust Co. in Little Rock, Ark., assumed control of the bank’s locations. Insured deposit accounts were transferred to Pulaski Bank and were available immediately.

But ANB Financial had a high amount of brokered deposits — roughly $1.6 billion — that weren’t part of that deal.

Those deposits were held by investors all over the country, including Michigan.

The FDIC has the task of paying the brokers directly for the amount of their insured funds.

What savers must realize is that brokered CDs are not the same as an ordinary CD opened directly through a local or out-of-state bank.

Consumers can go to www.fdic.gov/deposit in order to see how insurance works and whether the Federal Deposit Insurance Corp. insures your money at a given institution.

Savings accounts, checking accounts and CDs are insured by the FDIC up to the legal limit of $100,000 and sometimes more for special kinds of accounts or ownership categories. For example, each person’s deposits in self-directed retirement accounts at the same insured bank are added together and insured up to $250,000. Naming beneficiaries to a self-directed retirement account does not increase insurance coverage.

Read disclosures carefully

Brokerage firms offer CDs, too. The deposit brokers can sometimes negotiate a higher rate of interest for a CD by promising to bring a certain amount of deposits to the institution.

These brokered CDs are then offered to customers.

If you put money into a brokered CD, read all the disclosures. You need to know which bank or thrift insures your CD.

The Securities and Exchange Commission has warned that consumers risk not being fully insured if their total deposits at the bank or thrift, including all brokered CDs at that bank, are above the insured limit.

You need to know up front if your broker plans to put your money into a bank or thrift where you already have other CDs or other deposits.

If the bank fails, typically, the healthy bank that assumes control of the troubled bank’s assets won’t agree to acquire the brokered CDs. It’s essential to understand if all your money in brokered CDs falls within the FDIC insurance limits.

David Barr, an FDIC spokesman, said most of the deposits at ANB Financial were brokered CDs, which is unusual.

As of Tuesday, the FDIC had released about $550.7 million out of $1.6 billion in brokered deposits at ANB. That’s roughly 35% of the deposits.

The situation is made more complex because about 180 brokers had funds on deposit at ANB. Paperwork is required to make sure that customers are only covered according to the limits.

The FDIC needs to cross-reference who has brokered CDs at that bank and how much they have in total through various brokers.

Adam Banker, a spokesman for Fidelity Investments, said Fidelity has provided the FDIC with information about many customers who had brokered CDs through ANB Financial. Fidelity is completing the paperwork for customers, but some customers may need to take more action.

But he said customers who have more than $100,000 in those CDs will need to submit more paperwork for the FDIC and return that paperwork to Fidelity so it can be submitted to the FDIC. Customers can get more information at www.fdic.gov.

No one could tell me how long the process could take for some consumers. It is unknown how long savers would have to wait to get the remaining money.

 

This entry was posted on Sunday, June 1st, 2008 at 3:45 pm and is filed under Financial Services. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.