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For opportunists, IndyMac CD yields are a bonanza

Struggling to hold on to depositors, IndyMac Bancorp now is offering the highest yields in the nation on six-month and one-year savings certificates.

And the troubled Pasadena-based thrift isn’t just edging competitors on yield -- it’s trouncing them.

That also raises some questions, of course -- including the moral-hazard question: Should a money-losing financial institution be permitted to pay well-above-market deposit rates under the protective umbrella of federal deposit insurance?

For a six-month CD with a $5,000 minimum deposit, IndyMac’s website on Tuesday was offering an annualized yield of 4.10% as an online "special."

The next-highest-paying bank in the nation for six-month CDs was Corus Bank of Chicago, with a 3.7% annualized yield, according to Bankrate.com.

Indymacfront IndyMac on Tuesday was paying significantly more than it was on Sunday, according to Informa Research Services of Calabasas, which tracks savings rates. The six-month CD yield had been 3.75% on Sunday.

IndyMac’s one-year CD yield was 4.45% on Tuesday for a $5,000 deposit, up from 4.10% on Sunday. Its top competitor banks were paying in the 4% range on Tuesday, Bankrate.com showed.

On Monday, IndyMac announced a major retrenching, all but halting traditional mortgage lending as it seeks to conserve capital. The company’s stock closed at a record low of 44 cents Tuesday, and some Wall Street analysts say the shares will almost certainly end up worthless.

But IndyMac’s plan, at least for the moment, is to survive -- despite what its share price is suggesting. To stay afloat it has to keep a chunk of its $18 billion in deposits, even as some customers naturally are fleeing because all of the bad publicity.

Ergo the high yields it’s offering.

The thrift’s regulators obviously know what it’s paying. A Federal Deposit Insurance Corp. spokesman, citing standard policy, declined to comment on IndyMac’s rates.

There’s a bit of irony here: The company’s regulators are partly responsible for IndyMac’s high yields, because as part of their increased oversight of the firm’s operations they’ve banned it from accepting so-called brokered deposits. Those deposits are brought in by intermediaries searching for the best yields for big-money clients.

With that source of funds gone, IndyMac looks like it’s turning more toward individual depositors.

Should they bite? For savers, the beauty of federal deposit insurance is that they can’t lose money if they stay within the insurance limits. Even if IndyMac should fail, the worst that could happen is that your CD would be cashed out early by the FDIC.

That just leaves the moral question: Should people be taking advantage of high, federally insured yields at an institution that has lent money as badly as IndyMac has?

Photo: Tim Rue/Bloomberg News

 
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