Their loss WAS your gain

IndyMac Bank (a first cousin of Freddie Mac and Fannie Mae) is “not well capitalised” – or “up the creek without a paddle“.

And they’re desperate for cash – so desperate that they’re offering 4.1% yields for a 6-month term deposit (or CD, or time deposit, or whatever you call them) – half a percentage point higher than all of its competitors.

Now, you’d be leery of sticking your money in a failing bank. But thanks to America’s system of deposit insurance, if you have less than $100,000 in a bank account when it goes tits up, your money is insured – and America’s deposit insurance is so slick that generally, when a bank fails, your cash will be sitting in a brand new account with another bank within a week.

So, American readers, go forth and engage in some moral hazard! Stick $99,000 in an IndyMac account and start thinking about how you’re going to spend your extra $450.

Update: Too late.

That was the second biggest bank failure ever in the USA. Continental Illinois, which failed in 1984 with $40 billion in assets, is still number one.

This entry was posted in Money. Bookmark the permalink.