07 Jul Can a bank sell my CD to another entity?

Q. I’m shopping for Certificates of Deposit (CDs) at the new higher interest rates. A friend told me to make sure a small, local bank I chose sells or transfers the CDs to another entity. Is this a sign that my bank is in trouble?
— Investor

A. We’re glad you’ve been shopping around.

The current interest rate environment makes CDs a very attractive way for your savings to earn income over and above that of a savings account.

Rates can vary significantly between the large banks, smaller local banks and credit unions and the online providers, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

She said the best rates can often be found with online institutions.

It’s also important to compare the rates across the different maturities, she said.

Now to your specific question.

“Like checking and savings accounts, CDs that are offered by banks in the U.S. are covered by the FDIC — Federal Deposit Insurance Corporation,” she said. “This coverage also includes foreign banks that have insured branches in the U.S.”

FDIC insurance will cover up to $250,000 per depositor per insured bank, she said. This means the combined total of checking, savings and CDs would need to fall below $250,000 to be guaranteed should the bank fail.

“Unlike mortgages and some loans, which can change servicing organizations many times, banks do not sell or transfer CDs to other banks in the normal course of business,” Mott said. “When a CD reaches maturity, the customer can request that the funds be transferred to another bank if desired. IRA CDs can also be transferred at the time of maturity.”

In the event of a bank failure, as we witnessed this year with Silicon Valley Bank and First Republic, either the FDIC will ensure that customer funds are protected or the new owner of the bank will assume responsibility for the deposits, she said.

It’s also important not to misinterpret the purpose of the services that are now available that can move customer’s money to different banks when balances exceed the $250,000 deposit limit.

“A customer must sign up for this service with their bank. Sometimes referred to as liquidity sweep programs, these cash management tools will employ a network of banks to allocate customer accounts in order to remain within the FDIC limit,” she said.

And, she said, for your local bank, you may be well served by making an appointment to speak with a bank officer to be sure your questions about the bank’s health and procedures can be answered.

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This story was originally published on July 7, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.