Beware The Deceptively High CD Rate Offers

FDIC Warns On Deceptive CD Rate Offers

Due to the very low interest rate policies of the Federal Reserve, savers have been hammered into oblivion.  Short term treasury securities with a one year maturity offer rates barely above zero.  Banks are offering longer term CD rates that approach only a tiny 2% yield.  Under such circumstances, it is only normal that savers  searching for higher FDIC guaranteed rates would be a prime target for firms offering deceptive high CD yields.  The FDIC issued the following warning today to be suspicious of firms offering above market CD rates that are not FDIC guaranteed.

What’s really behind that tempting CD rate? Maybe you should ask. – June 19, 2009

The FDIC has received inquiries and complaints about certain companies advertising above-market interest rates for FDIC-insured Certificates of Deposit (CDs). Some of these ads display the FDIC logo or state “FDIC Insured.” Many of these companies are not FDIC-insured banks. Rather, they are insurance or financial service companies that sell non-insured financial products. The small print in the ads may state that the company is not an FDIC-insured financial institution.

The advertised CDs generally offer above-market interest rates for only a short term, require a minimum amount, and insist that the customer visit a company office. The advertisement’s goal is to attract consumers for the company’s non-deposit products or services. If a customer asks to purchase the advertised CD, the company will direct the customer to a computer terminal in the company’s office to purchase a CD from an FDIC-insured financial institution that accepts Internet deposits. The CD will be offered at a rate lower than advertised. The company typically writes a separate check to the financial institution for the difference between the bank’s rate and the advertised rate for the term of the CD. Both checks are mailed to the bank, and the bank then issues the CD for the increased amount, but at the bank’s lower interest rate.

Problem institutions desperate for money to stay afloat have been the prime culprits in luring unsuspecting savers to deposit their money with them with the false promise that their funds are FDIC insured, when in fact they are not.  Depositing your savings with such unsavory institutions could easily lead to the loss of your entire deposit, as happened recently with Stanford Financial.

US Files Criminal Charges in Stanford Case

WASHINGTON — Federal prosecutors filed criminal charges against R. Allen Stanford, accusing the Texas financier and several officials in his once-booming financial firm of conspiring with a top Caribbean regulator in a $7 billion scheme to defraud investors.

A revised SEC complaint filed Friday said the fraud stretched over at least 10 years. Stanford International Bank, the complaint alleged, sold more than $7.2 billion of what investors believed were high-yielding certificates of deposit. Many were seeking safety amid the tumult of the unstable financial markets in countries such as Venezuela.

Hundreds of investors who were promised double-digit interest rates, well above rates offered by CDs sold by major banks, instead have been left with the likelihood they will collect little of their invested funds.

Instead of safe investments, the Stanford companies “misappropriated billions of dollars of investor money” and squandered the funds on “speculative, unprofitable private businesses controlled by Mr. Stanford,” the SEC complaint said.

Most Fraud Cannot Occur Without Investor Greed

INVESTIGATE before you place your money with an institution that your are not familiar with.  To be safe and certain that your are dealing with an FDIC insured institution, check directly with the FDIC on their website at http://www2.fdic.gov/idasp/main_bankfind.asp.  If the bank is legitimate and FDIC insured, it will be on the FDIC insured list.  Do your homework before investing your precious savings and do not let greed override common sense – most Ponzi schemes and financial fraud would not occur if investors did not let greed override common sense.  If something sounds too good to be true, it usually is.