bank rates

3 Warnings Signs Your Bank May Fail

Although optimists may argue that the worst of the credit crunch is behind us, I believe that there are still stormy seas ahead. Even JP Morgan’s own CEO, Jamie Dimon, states:

“Our expectation is for the economic environment to continue to be weak–and to likely get weaker–and for the capital markets to remain under stress.

So here we go, here are some signs that your bank may be in financial trouble.

1) Is your bank offering outlandishly high CD rates and savings rates?
Banks that offer high interest rates are desperate. All banks get a lot of their capital through brokered deposits. Professional money brokers are paid commission to go out and solicit deposits for the banks. HOWEVER, under Section 29 of the FDI Act, implemented by Part 337 of the FDIC Rules and Regulations, banks that are deemed “under-capitalized” by federal regulators are restricted from accepting brokered deposits. Instead, banks in trouble need to entice deposits from individuals by offering exceptionally high rates.

2) Does your bank lend heavily in California, Florida, or Las Vegas?
These were the hottest real estate markets in the last few years, but what goes up must come down. These markets are now seeing huge declines in property value and increases in foreclosures. For example, PNC Bank is actually holding up quite well because they do not do business in these areas.

3) Is your bank being slaughtered on the stock market?
Institutional stock traders, mutual funds, and hedge funds know what they doing. They pay analysts heaps of money to review balance sheets of banks.

Indymac Bank Is a Prime (pun intended) Example
About a week before they went under, I did a story pointing out that Indymac Bancorp had become a penny stock. Indymac was offering an exceptionally high 4.45% APY 1 year CD at that time as well. Oh, and to make things worse, Indymac’s core business was financing ALT-A home loans in California! TRIPLE WHAMMY.

Do you have any more warning signs? If so, please leave a comment.

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Comments (35)
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35 Existing Comments
  1. javier said:
    on July 25th at 02:42 am

    Hmmm…I wonder why Wamu’s online CD is at 4.18% all of a sudden…crash and burn for Wamu

  2. tom b said:
    on July 25th at 04:50 am

    even boa is 4.11%, hmm… what’s the deal with CDs if your bank fails? do you get all of the money back with the full interest?

  3. shraz said:
    on July 25th at 09:17 am

    big banks need money, they know the interest rates will go up so they offer ‘nice’ rates for 1year and longer.

  4. Leigh said:
    on July 25th at 02:43 pm

    The real question is – if your bank does fail is your money safe? Is it ok to assume that if you have under $100,000 invested in one bank and its FDIC insured that your money is ok? I thought signing up for a few bank offers (bonus for opening up a checking account) would be a great way to get some extra cash but I am wondering now…

  5. christine said:
    on July 25th at 02:47 pm

    i’ve noticed over the past 2 weeks WAMU’s CD APY keeps going up…went from 3.5% to 4.25% within the couple weeks. worried. i have 2 CDs there that will mature next month and my savings account is there too.

  6. Bibi said:
    on July 25th at 03:49 pm

    christine – ditto for me. i’m worried too. but WAMU is such a big bank, and it is diversified. even with their huge losses, i don’t think they are going to go under. i’m just sticking to the FDIC rules for now and waiting it out.

    any others with insight here?

  7. Rick said:
    on July 25th at 05:49 pm

    If a bank fails that I have a CD in that has not yet reached it’s maturity date, does the CD still earn interest payments as promised by the failed bank which will be paid later by the F.D.I.C.? Does the F.D.I.C pay off the funds right away and just cancel the unmatured CD?
    How does the F.D.I.C. insurance work in that case?

  8. shraz said:
    on July 25th at 06:04 pm

    WAMU would probably be bought up if they went under. WellsFargo and JPMorgan are contenders and they actually posted good earnings results.

  9. Steve said:
    on July 27th at 08:48 pm

    Two questions…
    #1 – how does one find out if their bank does lend or has lent heavily in California, Florida, or Las Vegas?

    #2 – What is the definition of “outlandishly high CD rates and savings rates”? I checked the CD rates at this site and it seems like a lot of banks are offering 4% plus APY 1-yr CD’s.

    I live on a fixed income, so don’t have a lot of $$ that I can tie up – $1k max.

  10. Frank said:
    on July 28th at 12:08 am

    Check the Bauer Star Rating of your bank which is a good indicator on how safe it is. You can find this information at:

  11. Maddy said:
    on July 28th at 05:30 pm

    Bauer Financial gives Washington Mutual a rating of 3. On their rating scale, 3 means ‘adequate’ (3 1/2 is good and so on)

    So would it be a good idea to open a CD with WaMu?

  12. J. Wu said:
    on July 28th at 05:59 pm

    Be careful with WaMu. They have 2 registered business entities. I think one in Nevada and one in Utah.

    I am not sure which holding company houses all of their customer deposits.

  13. Maddy said:
    on July 29th at 03:55 pm

    Thanks for the info, J Wu

  14. Steve said:
    on July 30th at 12:04 am

    Frank – thank you for the link 😉

    Also, I agree with J. Wu regarding Wa-Mu…
    I have a Wa-Mu CC; they had nice bal xfer offer (8.24%) going until the last time the fed dropped the rate a 1/4-pt.

    Then it changed to: Take advantage of a 1.87% rate on balance transfers until June 2009! After that, your balance transfers will be at a variable rate of Prime + 14.99%. Using the Prime Rate in effect for billing cycles beginning in July 2008 as an estimate, this APR would be 19.99%.

    That’s well over twice the rate I pay on most of my other cards. Which vary from a low of 7.99% variable (Chase) to 10.99% fixed (Citi).

    Should be quite obvious that Wa-Mu is trying re-coup they’re massive home loan losses using they’re credit card division. Given the state of the economy, I’d say they’ll lose money there as well.

  15. Dan Tanner said:
    on July 30th at 03:41 am

    Always check stocks on publicly traded banks. Are they going single digits? Outlandish rates are another act of desperation. Always deposit no more than $ 100,000 in each legal name you can open an account, no ifs and buts on this.

  16. Maddy said:
    on July 30th at 06:38 pm


    No more 4.11, it’s now 3.3 !!

    tom b said:
    on July 25th at 04:50 am

    even boa is 4.11%, hmm… what’s the deal with CDs if your bank fails? do you get all of the money back with the full interest?

  17. Jocie said:
    on August 1st at 06:10 pm

    Hi Maddy, I
    f you place your money into a CD with a bank that is FDIC insured (including let’s say IndyMac) and the total of your account (including interest accrued) is less than $100,000, then you will get all of your money back even if the bank fails. You can visit the FDIC web site for more info. I’ve learned this first hand from IndyMac, the FDIC web site and

  18. Edward Obi-Akpere said:
    on August 2nd at 11:39 am

    The point that interest me most is; “Is your bank being slaughtered on the stock market?”. It is very true that when stocks and shares of a bank is going down in the stock exchange market, there is clear indication such a bank is not performing, in this market (stock exchange market), prices are determined by the free market forces of demand and supply.

  19. Mocirne said:
    on August 6th at 03:43 am

    Basically if you have a CD that is less than or equal to $100,000 in a bank that goes under (bought out by the FDIC), the FDIC will either send you a check literally within a few days for the full amount (principal + interest) or retain the CD in its Open status and you will continue to earn interest on this. Somewhere down the line, the FDIC will sell the bank to a buyer, who will then do 1 of 3 things: 1) close your CD account on the spot and send you a check for the full amount, 2) keep your CD open at its existing rate, 3) notify you that they are changing the rate, which you can accept or reject… if you reject they will send you a check for the full amount. Bottom line is, if your amount is under $100,000 (that includes principal AND interest, by the way) you will either get all of your money back, or nothing will change for you and your account will continue gaining interest under its original conditions.

  20. Nancy said:
    on August 7th at 02:41 am

    I, too, had money with Indymac and got it all back. The FDIC rules made that very easy. The new Federal Indymac has offered new CDs with new rates. Also did hear WAMU is not doing as well right now. I live in Nevada and it’s a bit of a mess here.
    Anyone have feedback on other alternatives such as E-trade or ING-Direct savings accounts?

  21. Bali said:
    on August 7th at 03:38 am

    i want to open a cd account. Do not know which bank i shoould open.
    In my MA states, rates are very low.
    Does any one have experience with Discover bank ? rates are good
    for 5 years term. I was going to open at WA-MU, but afer reading
    all the comments, it make me scared. any suggestion.

  22. Maddy said:
    on August 7th at 02:18 pm


    I have heard only good things about ING Direct so far, (except the electronic checks, which again is not quite bad really)

    I opened an online savings account with them just a week back, the process is pretty simple (I did it online). The rate they offer maybe a little less than some of the other players, but from what I heard, they are a safe bet!

  23. Nancy said:
    on August 8th at 01:50 pm

    I appreciate the feedback! I also noticed on that HSBC Bank of Nevada (which appears to be an online bank also) has a 5-star rating. Just getting over the leap of faith for internet banking since I’m a boomer and this is new to me! Brick and mortar just isn’t as safe as it used to be so I guess I better open up to new options.
    Thanks again.

  24. Dee said:
    on August 10th at 11:12 pm

    These are true statements. Watch out for those outlandishly high rates! Check your banks stock price. Although all banks have been seriously effected by our troubled market, if your bank has a higher stock price compared to the rest AND the deposit rates are comparable or lower than others….stay with that bank. However, if the deposit rates are high and the stock price is down, remember, that 2% higher rate is not worth the trouble. Afterall, if a bank fails, FDIC may take a while to reimburse you.

  25. Stan said:
    on August 12th at 07:27 am

    The problem with counting on FDIC is that in abnormal banking times like this, the fed government may not have enough money to save every depositer out there. What you can do to protect yourself is to deposit your cash in a highly regarded bank like Hudson City Bank. Since I don’t live anywhere near it ( I live in Florida ) I plan to start buying shares of it’s holding company, Hudson City Bankcorp, Inc.

  26. dre said:
    on August 31st at 01:31 am

    ahm… two words.. Bear Stearns.. need i say more? a bank ISN’T too big to fail

  27. WaM-U with Fees... said:
    on September 1st at 01:17 pm

    I just want to say that WaMu is one of the WORST banks ever when it comes to unethical fees and other nonsense.

    If WaMu goes under it will MAKE MY DAY!!! I”ll be SO HAPPY!!

    I’m going to keep a bottle of Champaign ready so when I hear the news on CNN that WaMu has FAILED I can pop the cork and celebrate!!

  28. Ange said:
    on September 7th at 07:14 pm

    Anyone can comment on ING Direct saving.CD Service?

  29. Bob said:
    on September 19th at 04:11 am

    Hey WaM-U with Fees-

    did you overdraw your account & they charge you an overdraft fee you idiot?

    they invented free checking

    what fees do you speak of?

  30. Jason said:
    on September 19th at 04:12 am


    Bear Stearns is NOT a bank.


  31. steve said:
    on September 22nd at 09:06 pm

    Careful folks. There is not nearly enough money in the FDIC insurance account to cover a WaMu failure. Not even close. The FDIC would probably have to petition Congress for 100 billion additional dollars just to cover WaMu’s insured accounts. And what happens if another bank fails (or when another bank fails). Where is the government getting any money right now? It owes out over 10 trillion dollars, and every month needs to come up w/ 200 billion just to cover the interest on that debt. Can you see the next move you should be making?

  32. Max said:
    on September 23rd at 02:59 pm

    I guess our next step is to place cold cash under our mattresses. I kid not…my grandmother didn’t trust banks after going through the Great Depression…and here we are again.

  33. down with wamu said:
    on September 26th at 06:27 pm

    WaM-U with Fees… time to pop the cork open, lol

  34. mario said:
    on November 18th at 09:29 am

    Hi all, I am thinking of opening a CD with Discover Bank, it seems pretty secure and a little less risky than WAMU and others, a good rate as well for a 5 year CD. Any advice? I just finished a CD with another major bank and they’re wanting me to stay with them but thinking of opening a Discover account to diversify. Thx.

  35. lonnie j said:
    on January 12th at 02:42 pm

    apache is areal clown from depositaccounts