IndyMac CD rates surge as its stock price plunges

Struggling to hold on to depositors, IndyMac is offering the highest yields in the nation on six-month and one-year certificates of deposit. And the troubled Pasadena-based thrift isn't just edging out competitors on yield -- it's trouncing them.

That 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 Wednesday was offering an annualized yield of 4.1% as an online "special."

The next-highest yield on a six-month CD was 3.7%, available from three banks: Corus Bank of Chicago, GMAC Bank and Charlotte, N.C.-based NewDominion Bank, according to bankrate.com.

IndyMac was paying significantly more Wednesday than it was Sunday, when it was offering 3.75% on a six-month certificate, according to Informa Research Services of Calabasas, which tracks savings rates.

IndyMac's one-year CD yield was 4.45% on Wednesday for a $5,000 deposit, up from 4.1% Sunday. Its top competitor banks were paying about 4% Wednesday, bankrate.com showed.

On Monday, IndyMac announced a major retrenching, all but halting traditional mortgage lending in an effort to conserve capital. The company's stock closed at a record low of 38 cents Wednesday, 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 flee because of all the bad publicity.

Ergo, the high yields the company is offering.

A Federal Deposit Insurance Corp. spokesman, citing standard policy, declined to comment on IndyMac's rates.

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 middlemen 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 you bite? For savers, the beauty of federal deposit insurance is that you can't lose money if you 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?

tom.petruno@latimes.com