What happens to CDs if bank fails?

[disneysteve]

What happens to a CD you own if your bank fails? I know FDIC will cover the principal but would you continue to earn interest at the stated rate or would the CD just get liquidated? How about if another bank buys the failed bank? Are they obligated to continue paying the same rate or can they reset it?

WaMu is offering a 5% 12-month CD which is a great deal right now, but I'm curious how things would play out if they failed or got sold.

[Broken Arrow]

FDIC says:

The basic insurance amount is $100,000 per depositor, per insured bank. This includes principal and accrued interest up to a total of $100,000.

That's if the bank fails rather than get bought out. Not sure what happens with a buy-out.

[minnie1928]

I would think that it would be the same as if you had a mortgage...just in reverse. By getting the CD you've purchased a security at a stated rate (per your disclosure). I'm sure this would be the case for a bank that was purchased. They would look at the portfolio of deposits and they would be bought factoring in the weighted average rate on those deposits. With a bank failure...I'm not as sure, but I'm still thinking that your disclosure documents would hold true.

[kork13]

wow, i mentioned this in another thread without even realizing this was here...

My understanding is that they will cover your interest and any accrued interest up until the day the company called it quits. However, interest is normally paid once a month, so if it's the 26th and your bank fails, you probably won't get any interest from that month at all. At that point, it sits as a solid-state balance, earning no interest whatsoever.

I could be wrong, however... I'm not entirely certain on this point....

[Exile]

I may have found the answer. See the FDIC web page "When a Bank Fails". Under the heading "What Is the Purpose of FDIC Insurance?", the FDIC covers all principle and interest of an account up to the date of a bank's closing. I believe the implication is that the agency does not continue paying interest beyond that point.