What Happens To Your CDs When Your Bank Fails?

February 20, 2009

A recent article in the LA Times looks at what happens to your CDs, or certificates of deposit, when your bank fails or is bought.

While your principal is safe, if your deposits are within the FDIC limits and the bank is a FDIC insured bank, the rate that you were guaranteed to recieve on your CDs is not.

Simply put, the acquiring bank is not obligated to honor the interest rates promised by the acquired bank, and the depositor has the option of accepting the new interest rate, or cash the CDs in, and receive the principal and any interest earned to date, without incurring an early withdrawal penalty.

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