Bank Merger Effect on CD Rates

Significance

• If a bank purchases or mergers with a bank on its own, the acquiring bank must pay the stated interest rate on the CDs already issued by the bank being purchased.
  
  

Effects

• If a bank takes over another bank that failed and the FDIC acts as the intermediary, the acquiring bank does not have to honor the interest rates promised to CD holders.
  
  

Considerations

• When a failed bank is acquired, acquiring bank has the option to honor the existing CD rates or to change the interest rate, usually decreasing them.
  
  

Benefits

• If you owned a CD that is now being offered a different rate or different terms, you have the option to withdraw your money without penalty from the account even if your CD will not mature for several months or years.
  
  

Warning

• In addition to changing the CD rates, an acquiring bank may also change the terms of the account, such as the early withdrawal penalty, so you should carefully read the new terms before accepting them.