The news that Certificates of Deposit sold by Stanford International Bank highlights the importance of making sure the bank you deposit money into is FDIC insured.
The U.S. Securities and Exchange Commission said on Feb. 17 that Stanford Group Co. Chairman R. Allen Stanford was running a “massive, ongoing fraud” while selling about $8 billion in certificates issued by the Antigua bank through his Houston- based firm. Part of the fraud seems to involve the sale of Certificates of Deposits that yielded above-market rates of return. According to customers, the returns on the CDs were in the 7-12% range. The current top CD rate according to the BestCashCow rate tables is 4.9% APY from a bank and 5% APY from a credit union. All banks in the BestCashCow rate tables are FDIC insured.
Stanford International Bank was clearly paying significantly above-market rates of interest which should have been one warning sign. But the biggest warning sign should have been that it was an international bank based in Antigua without FDIC insurance.
Why FDIC Insurance is Important
Beyond the fact that FDIC insurance protects your money up to $250,000 per account per person (insurance levels will revert to $100,000 on Dec 31), FDIC insurance ensures that the bank is examined and regulated by a Federal Authority. All insured banks are routinely inspected and have to submit detailed financials to the FDIC, the Office of Controller of Currency (OTC) or the Office of Thrift Supervision. A bank that is conducting outright fraud has a much greater chance of being discovered quickly with this kind of oversight. And if it's not, your money is still protected by the deposit insurance.
Insurance ensures a level of oversight that maked fraudulent activity much harder to perpetrate and protects you, the depositor from any losses.
To determine if your bank or a bank you are considering putting money into is FDIC insured, visit the FDIC website and search for your bank. If you find the bank you'll be able to see its FDIC charter number as well as which agency regulates it.
If you aren't able to verify that the bank is FDIC insured or Federally regulated, don't invest, even with promises of high returns. There's no need to take a safe investment in CDs or savings accounts, and make it risky. As Madoff and now Stanford International Bank are demonstrating, if something looks too good to be true, then it probably is.
Please note that all Certificates of Deposit and Savings and Money Market accounts listed on the BestCashCow rate tables are FDIC insured.
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