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Rates Cuts Come Quickly At Failed Bank

It used to take new owners at least a couple of months to decide whether they would honor the CDs they acquired from failed banks.

Now it’s only taking a couple of weeks.

A recent story in the Milwaukee Journal Sentinel tells the story of Tom and Carol Spidell, who were customers of Maritime Savings Bank, which failed on Sept. 17.

Before the month was over they “received five letters – one for each certificate of deposit they had with Maritime — informing them that the interest rates on their CDs had been slashed.

“For the Spidells, that meant the interest on a CD that doesn’t mature until next spring will be paying about a half-percent instead of the 3.05% they signed up for a couple of years ago. Other Maritime CDs with interest rates ranging from 1.5% to 1.95% also were pared to 0.45% or 0.55%, all of them with roughly a year to go before they mature.”

Now North Shore Bank, which bought Maritime Savings Bank from the FDIC, was well within its rights to cut those rates.

As FDIC spokesman David Barr told the Journal Sentinel: “Every time a bank fails now, the acquiring institution has the option to lower the interest rates.”

Steve Steiner, a senior vice president at North Shore Bank, told the paper that Maritime’s CD rates were out of sync with the market.

“Maritime clearly has paid higher-than-market rates because of their previous financial condition,” Steiner said.

He told Journal Sentinel that his bank offered competitive rates but “prefers customers who want to do all or most of their banking with one bank instead of people who move savings from bank to bank in pursuit of the best yields.”

Fair enough.

But Tom Spidell claimed to be a longtime Maritime customer. He considered the rate-cutting letters “an insult” and said he would move his savings elsewhere.

So I called Steiner and politely acknowledged North Shore’s right to cut Maritime’s rates, but asked if the bank had considered the implications this had for North Shore’s customer relations.

Steiner immediately labeled the question as “adversarial,” and said “I don’t know why I have to explain myself to you.”

And he doesn’t.

The Spidells experience reflects the sorry situation savers find themselves in.

The Federal Reserve’s cheap money policy has made our savings inconsequential.

Banks can cut rates without worrying about offending us, or that we’ll take our money elsewhere. They don’t need it and where are we going to go?

The average return on 6-, 12-, 24-, 36- and 60-month certificates of deposit all reached new record lows in Bankrate’s latest weekly survey, taken Oct. 6.

Our sympathies to the Spidells — retirees who will simply have to live on less because of this.

Comments (3)
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  1. Kristin said:
    on October 8th at 02:46 pm

    Why is that a right for the banks? I would understand if it was savings account rates, something where you can take your money out and close the account with no penalty… but for something like a CD, it seems like it should be considered a contract of sorts… Like maybe since the bank is cutting the rates, the Spidells should be allowed to withdraw the money before maturity without penalty.

  2. Mike M said:
    on October 11th at 01:47 pm

    Kristin,

    By law, when a bank fails, anyone with insured deposits gets the insurance for the principal and interest at the time of the failure. The new bank taking over operations is allowed to change rates, but the CD holders cannot be charged penalties for early withdrawal. The contract has been broken by the failure of the first bank, so the holders are free to leave at their will. The FDIC is very clear on this.

    Where things get murky are when the CD holder waits before contacting the bank. If the CD rate is changed and the customer waits until the new “grace period” has expired before requesting withdrawal of the money, then perhaps an early withdrawal penalty may apply?

  3. Sharon K said:
    on October 11th at 03:25 pm

    Ironic, isn’t it, that just as we got the message to save more, the rates keep going further and further south. One day soon maybe we’ll have to pay them to take our money.