Brokered CDs: screening the issuing institution?

[Spock]

I recently started shifting cash to CD ladders (at Fidelity).
The cautions state to review the health of the issuing institution(s).
I slow down when offered choices from places like "Bank of China" or some name I can't even pronounce or spell, much less heard of before (bankrate never heard of them either).

Do you research the health of the institution before buying a CD from them?
If so, where do you find health ratings on the institution?
Or do you just go with "there is an "FDIC" icon in the the attributes column" and buy it?

 

[Red Badger]

I have bought one B of C CD (paid higher than the rest). The brokered CD's are still underwritten by the issuing bank and not the broker. I stay away from the ones that have state level restrictions (blue sky). Otherwise, FDIC is good enough for me.

 

[Blueskies123]

Maybe I am overly cautious but I stick with well known names like Wells Fargo.

 

[brewer12345]

As long as it is insured, I don't care who the bank is.

 

[53anddone]

I have had no issues with fidelity offered CDs but stay within the FDIC insured limit.

 

[Dtail]

I have had no issues with fidelity offered CDs but stay within the FDIC insured limit.

+1

 

[Al18]

I only invest in CD's from banks with an A or B rating according to https://www.depositaccounts.com/

 

[jazz4cash]

Maybe I am overly cautious but I stick with well known names like Wells Fargo.

Yep UBetcha! WFC knows how to treat customers. Seriously they were top notch before they lost their way. They seem to have the best rates for most maturities on the Fido site and pay monthly. While I favor well known banks I rely more on FDIC and diversification.

 

[CaliKid]

F-D-I-C.

 

[audreyh1]

So I assume these Bank of China and Bank of India type banks listed are US subsidiaries, subject to US regulations, FDIC insured, etc.?

 

[daylatedollarshort]

Or do you just go with "there is an "FDIC" icon in the the attributes column" and buy it?

^This. I have been doing this for years and so far so good. Banks with names that sound like Moldovia seem to pay higher rates (they might have to) than the household name banks.

 

[brewer12345]

So I assume these Bank of China and Bank of India type banks listed are US subsidiaries, subject to US regulations, FDIC insured, etc.?

They are fdic insured.

 

[gcgang]

Good enough for you,
Good enough for me.
Only buy a few,
Cuz it's F-D-I-C.

Besides, it's gubmint guaranteed. What could go wrong?

 

[Blueskies123]

So I assume these Bank of China and Bank of India type banks listed are US subsidiaries, subject to US regulations, FDIC insured, etc.?

They are as safe as any CD but why are you so interested in these two banks. There are plenty of other options that would let me sleep better at night.

 

[audreyh1]

They are as safe as any CD but why are you so interested in these two banks. There are plenty of other options that would let me sleep better at night.

I’m not seeking to buy from these banks in particular, I just noticed a large number of foreign country named banks on the new CD issues and was curious about how they are structured.

I know BBVA is a Spanish bank with a large US subsidiary, for example.

 

[Blueskies123]

I imagine most foreign countries would love to open a branch in the Untied States, sell CDs and get lots of USA dollars and then have the American taxpayer guarantee repayment.

 

[pb4uski]

I imagine most foreign countries would love to open a branch in the Untied States, sell CDs and get lots of USA dollars and then have the American taxpayer guarantee repayment.

Hello? These USA dollars stay in the US. Also, the quid pro quo for FDIC insurance is conforming with US banking regulations on investments and capital. Not sure what you think the "play" is but ignorance is bliss I guess.

 

[Blueskies123]

Hello? These USA dollars stay in the US. Also, the quid pro quo for FDIC insurance is conforming with US banking regulations on investments and capital. Not sure what you think the "play" is but ignorance is bliss I guess.

Sounds like I struck a nerve with my comment and made you uncomfortable, my apologies. I way over simplified the attached short article.
https://www.depositaccounts.com/blog/types-institutions-banking-system-foreign-banks-operating.html

Anyone thinking about investing in FDIC insured bank of China or India should carefully read the attached article. Do not skim it, read it, and think through what the author is saying.

With so many options out there I would not put my money with the bank of China or India, but at the end of the day, as the author says, you are insured so go ahead if you want to.

 

[brewer12345]

Blueskies, did you read your linked article? Fdic insured is fdic insured.

 

[jazz4cash]

Also, if an FDIC bank gets in trouble, the funds to reimburse depositors do not come from the taxpayer. I guess in case of many failures at the same the taxpayers could be on the hook (i.e. "Full faith and credit..."). From the FDIC website:
What is the source of funding used by the FDIC to pay insured depositors of a failed bank?
The FDIC's deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or state tax revenues are involved.

 

[Scubamax]

For me like most it is FDIC or bust. And yes I have had one or two CD's during the financial crisis that were from PR based banks that went insolvent. Got my money back into my account the next day. Everything else is just noise.

 

[pb4uski]

Sounds like I struck a nerve with my comment and made you uncomfortable, my apologies. I way over simplified the attached short article.
https://www.depositaccounts.com/blog/types-institutions-banking-system-foreign-banks-operating.html

Anyone thinking about investing in FDIC insured bank of China or India should carefully read the attached article. Do not skim it, read it, and think through what the author is saying.

With so many options out there I would not put my money with the bank of China or India, but at the end of the day, as the author says, you are insured so go ahead if you want to.

I guess it was more your ignorance that struck a nerve. Did you read the link? In the last sentence the author says:

I like some of the deals I see these banks offering, what’s most important for me to understand? "FDIC insurance is FDIC insurance, no matter who owns the bank."

Earlier they said:

DepositAccounts.com, through an email interview, asked Corder to sort through the jargon and answer possible concerns you might have. For example, if you open a CD at one of these banks, even if it is FDIC insured are they any risks compared to a domestic bank with a domestic parent company? "FDIC-insured is FDIC-insured. It doesn’t matter whether the parent is domestic or foreign," says Corder.

So given that conclusion to a link that you provided.... what is your hangup on buying a CD from a foreign owned bank? or are you just foreign bank-aphobic?

 

[njhowie]

So given that conclusion to a link that you provided.... what is your hangup on buying a CD from a foreign owned bank? or are you just foreign bank-aphobic?

I can appreciate both sides of the discussion.

It is true that FDIC insurance is there, and as most folks are aware, should catastrophe strike, FDIC would step in to cover principal and interest to date.

However, when we are talking about Bank of China and Bank of India, among others, and you see the issues the banks and financial systems have in those countries, it does make many folks think twice. Look, Puerto Rico declared bankruptcy - folks take notice when these things happen and their money is (virtually) far away.

Personally, I am foreign bank-aphobic. I do not trust foreign regulators as much as US regulators. Maybe that is not an appropriate way to feel. However, my money, my responsibility.

I have owned both short-term Bank of China and Bank of India CDs in the past. To be completely honest, even knowing that FDIC insurance was backing them, I felt uneasy having them in my portfolio the entire time right up until maturity. And in the end, for what, an extra 0.1%? Rates are high enough now that 0.1% is not worth losing sleep over for the interest on the $5k or $10k I might put in to one of those CDs.

 

[Gotadimple]

Do you research the health of the institution before buying a CD from them?
If so, where do you find health ratings on the institution?
Or do you just go with "there is an "FDIC" icon in the the attributes column" and buy it?

I don't see where this question was answered. Bankrate.com can tell you about CDs on offer. Bauerfinancial.com rates the institutions (banks or credit unions) based on their financial reporting to the federal government.
4 or 5 stars are recommended, anything else means there may be financial problems. You can search by state, or bank name, or fdic#. Detailed reports are available for a fee, but, really, the star system answers the questions you are likely to have: (1) are they financially healthy, (2) is there a concern by regulators.
Bottom-line: all are FDIC insured, if, however, you are dealing with a bank likely to call a CD, you face interest rate risk. What it gets replaced with might be at a lower rate than you had expected.

Rita

 

[Dtail]

I don't see where this question was answered. Bankrate.com can tell you about CDs on offer. Bauerfinancial.com rates the institutions (banks or credit unions) based on their financial reporting to the federal government.
4 or 5 stars are recommended, anything else means there may be financial problems. You can search by state, or bank name, or fdic#. Detailed reports are available for a fee, but, really, the star system answers the questions you are likely to have: (1) are they financially healthy, (2) is there a concern by regulators.
Bottom-line: all are FDIC insured, if, however, you are dealing with a bank likely to call a CD, you face interest rate risk. What it gets replaced with might be at a lower rate than you had expected.

Rita

I only invest in non callable CD's through maturity. Do you think many on this site purchase callable CD's?