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FDIC Consumer News - Summer 1998

Important Update: Changes in FDIC Deposit Insurance Coverage

The FDIC deposit insurance rules have undergone a series of changes starting in the fall of 2008. As a result, certain previously published information related to FDIC insurance coverage may not reflect the current rules. For details about the changes, visit Changes in FDIC Deposit Insurance Coverage. For more information about FDIC insurance, go to www.fdic.gov/deposit/deposits/index.html or call toll-free 1-877-ASK-FDIC (1-877-275-3342). For the hearing-impaired, the number is 1-800-925-4618.

Your Bank is Merging… Now What?

A checklist of questions to ask and factors to consider

Is your bank about to merge with another institution? Or are you just wondering what would happen if your bank were acquired by another institution? What a particular merger might mean for you will depend largely on the individual institution… and on what’s important to you. We want to help you sort things out. So, before you jump to conclusions… and maybe even jump to another bank… take a look at our checklist of questions to ask and factors to consider if your bank or savings association merges:

Branches and ATMs

    Does the new bank have branches closer to your home or office or even in other states or regions of the country?      

    Was your favorite branch closed? Was the branch shut down because the other bank already has a branch in the same area (and therefore you might not be inconvenienced)? Can you use automated teller machines (ATMs) for many of the same services?

    If you use ATMs a lot, does the new bank have more or fewer machines you can use without having to pay the fee charged to non-customers?

Products and Services

    Is the bank trying hard to keep existing customers by offering special incentives? Are other banks in your area offering special deals to lure you and other customers away from the merged bank?

    Does the new bank offer more or fewer choices for loans, credit cards, deposits and other banking services you need or want?

    Are the checking or savings account fees and terms better or worse than before? For example, are fees, minimum balance requirements or transaction limits higher than what you’ve been used to and will they make it difficult for you to keep an account at the bank? Is there a no-frills account or similar arrangement that you’d find attractive? How do your bank’s fees and requirements compare with those at other banks?

    Do the terms for new loans (the repayment schedule, the amount pledged as collateral, any insurance you’ll need to get, etc.) appear reasonable or do they seem too stringent? Have you talked to a loan officer about them? Have you compared the terms to those of other lenders?

    Do you want access to a broad range of financial services (not just traditional banking products) under one roof? If so, does the new bank offer the kinds of insurance, investments or other nondeposit products or services you want? (See the box at right about what is and is not protected by FDIC insurance.)

    Does the new bank offer “package deals” of some sort? Can you get a combination of products or services at a discount? (A discount package can be a great deal, but if the bank requires you to accept one product or service you don’t want just to be able to get another one you really do want, that may be illegal under “anti-tying” laws. For example, it’s improper for a bank to say it would only give you a mortgage if you got your homeowners’ insurance from a subsidiary of the bank. Illegal tying arrangements aren’t common or widespread, but if you suspect a violation of the law or if you want more information, contact the institution’s federal regulator.

    Do you do a lot of banking from home by personal computer? Is the new bank’s high-tech service better or worse than the one you used to use? If you’re not satisfied with the new bank’s system, have you talked to a customer service representative to make sure you’re using the service properly? Have you asked if the bank is considering improvements? Have you checked out what’s offered at other banks?

Interest Rates

   How are the rates on your savings and checking accounts? How do they compare with the rates at your old bank or what’s being offered by competitors?

Note: Even your old bank could have reduced its rates for passbooks or interest-bearing checking accounts. But in most cases, you don’t need to worry about the rate being reduced on an existing certificate of deposit (CD). FDIC attorney Mark Mellon explains that in the typical merger of two healthy institutions, the new bank will honor the interest rate at least until the CD matures. Sometimes a merger is the result of a healthy bank acquiring a failed institution. If that’s the case, your CD rate could be lowered by the acquiring institution. Why? “One party to your original deposit contract—your institution—no longer exists,” Mellon says. “That means you no longer have a contract.” If your CD rate is reduced, he adds, you probably will have about a two-week period to withdraw your money without paying an early withdrawal penalty.

    How are the interest rates on credit cards or other loans? How do they compare with the rates being charged by other lenders?

Note: If you need a new loan or credit card and the rates or terms aren’t as good as in the past, Ken Baebel of the FDIC’s Division of Compliance and Consumer Affairs suggests that you “do some old-fashioned comparison-shopping to see if other institutions can provide you with a better deal. You may be surprised when you share your results with the loan officer at the bank. They may very well match or beat the best quote you receive.”

Also, a very attractive interest rate being offered by your bank or by a competitor may just be an introductory “teaser” rate that will only last a few months, so be sure to read the various terms and conditions. Remember, too, that a bank can raise the interest rate or change the terms on your credit card after giving the required notice, typically at least 15 days. But rates and terms of other existing loans, such as a mortgage or car loan, typically can’t be changed by the new bank. When in doubt, check your loan contract.

Personal Service

    Is the personal service better or worse than you’re used to? Have bank employees you know and trust the most—a branch manager, a loan officer or a favorite teller—been replaced? Before reaching conclusions about the service, have you met or talked with bank employees to express any concerns you might have?

    Are loan decisions being made faster or slower? Have you talked to a loan officer and asked whether service can be improved?

    Does the new bank cater to a special group you belong to, such as senior citizens or small business owners?

    Are your transactions being handled smoothly? Or are there mistakes or delays in service as the two banks merge their computer systems, shuffle personnel or do business as a new entity? (Mistakes do happen, so keep good records and work with bank personnel who’ll make the necessary corrections.)

Final Thoughts

No matter what might cause banks to merge, it’s important for customers to pay close attention to any mailings about the situation. There could be important information from the new bank about changes in services or interest rates, how to use your old checks or ATM cards, what’s going on with loans or loan applications, and so on.

As you can see from our checklist, there are many factors to consider if your bank merges. Don’t immediately assume the worst. As we said, the new bank will be trying to keep you as a customer and present a good image in your community. So check things out for yourself, even visit the bank and talk to a manager to get a sense of how things might change. Do some comparison-shopping at other banks. Then make up your own mind, based on what’s important to you. Our first story also can help you get the most out of your banking relationship. When all is said and done (and merged), if you’re still not happy you’ll have many other banks to choose from.

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Last Updated 07/30/1999 communications@fdic.gov