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Jewish World Review
August 27, 2007
/ 13 Elul, 5767
Mortgage mess could be good for savers
By
Gail Marks Jarvis
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http://www.JewishWorldReview.com | (MCT)
> The fear over the mortgage mess in financial companies might actually be good for your savings account or CDs.
You might think it would be just the opposite -- that perhaps you should be yanking your savings out of institutions which have been struggling with mortgage-related financial problems. But provided your money is protected by Federal Deposit Insurance Corp. insurance, you might be able to earn extra money on your savings without taking on any more risk than you'd have at the safest bank.
For example, Countrywide Financial Corp. operates the nation's largest mortgage company and has been mentioned prominently in new reports as it has struggled to secure the financing it needs amid a deepening housing recession and rising mortgage defaults. Countrywide also operates a bank and recently raised the rates on some savings accounts and CDs to the highest levels offered by financial institutions tracked by Bankrate.com, a service that helps consumers compare rates. People depositing at least $10,000 in Countrywide's SavingsLink online savings account can earn 5.5 percent, and a one-year CD is paying 5.65 percent.
In contrast, banks that have not appeared in headlines on mortgage-related problems are paying much less. LaSalle Bank, for example, is offering 3.55 percent on a one-year CD, according to Bankrate.com.
It's not unusual for banks with shakier finances or negative attention in the news to raise rates to lure savers that might otherwise be reticent. GMAC bank, for example, has been offering relatively high rates while General Motors has been dealing with weak sales in the car business. A one-year CD pays 5.15 percent.
While investors may wonder if they dare take a chance in such situations, Chicago attorney Paul Bauch says they need focus on only two factors -- whether the institution is covered by the FDIC and whether the account a saver might be using is fully covered by the FDIC protection.
When the FDIC insures an account at a bank, it promises to protect a person's savings up to $100,000. Generally, that means that savings accounts and CDs are covered, but you cannot take it for granted.
Not all financial institutions have the insurance. If you are saving money in a money market mutual fund or some other mutual fund, it is not protected.
Before depositing your money, Bach says you should make sure your money will be protected. And if you are saving more than $100,000, put the excess over $100,000 in another FDIC-insured institution so you protect all your money.
Countrywide does have FDIC insurance, and banking analyst Bert Ely says he would not hesitate to deposit money there despite its recent troubles. He notes that a $2 billion investment in the company by Bank of America Corp. on Wednesday will be a "life ring" for the company. But because of FDIC insurance, "no matter what happens to Countrywide, the deposits will be OK."
Even people worried about a bankruptcy do not have to worry.
Attorney Harley Goldstein said the bank could be immune even if the corporate holding company filed for Chapter 11.
If the bank did fail, it would likely be auctioned by the FDIC to a new owner.
Every weekday JewishWorldReview.com publishes what many in the media and Washington consider "must-reading". Sign up for the daily JWR update. It's free. Just click here.
Gail Marks Jarvis is a personal finance columnist for the Chicago Tribune and author of "Saving for Retirement without Living Like a Pauper or Winning the Lottery." Comment by clicking here.
Previously:
08/17/07: Small stocks are coming with large caveats
© 2007, Chicago Tribune Distributed by McClatchy-Tribune Information Services
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