Financial Q&A: How a bank failure affects CD interest
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Q: Does the FDIC cover interest due on a $1,000 bank certificate of deposit if the bank fails before the CD matures? Or, if the interest is paid only at maturity, and the bank fails before maturity date, have I in effect given the bank an interest-free loan because FDIC will only repay my initial deposit?
L.M.C., via e-mail
A: If a bank fails before a CD’s maturity date, you would be entitled to the principal and interest accrued up to the date the bank failed as long as the total does not exceed the FDIC insurance limit, according to an FDIC
Currently, the FDIC covers deposits up to $250,000. Savers who are bumping against the FDIC limits may want to discuss with the institution a strategy whereby accrued interest would be periodically swept to a different account under a different registration. [Editor’s note: The original answer misstated the FDIC’s policy on accrued interest.]
Q: A year ago, I took out an interest-only mortgage as a bridge loan on a second home while I waited for my first home to sell. The loan cost is high, but I was assured by my Realtor and lender that it would be very short term. The first house, in a prime lake area, also has a mortgage and still hasn't sold. The home has over $500,000 in equity. My intention was to pay off or maintain a mortgage of less than $50,000 on the house that I moved into. Currently, however, my IRA is falling dangerously low as I have had to take out money to pay these loans. My lender suggested that I go into default and start foreclosure. That is against all my principles. If I could get at some of my equity, that would be great. I have already been told I cannot refinance because I don't have enough income.