Bank Fallout and Certificates of Deposit

March 30th, 2010 | by Allison Thompson |

When the Arkansas-based Centennial Bank took over Old Southern Bank of Orlando when it recently failed, most customers assumed that the new bank would honor the old banks certificate of deposit rates. Unfortunately, the bank customers that were transferred were shocked to find out that Centennial Bank would not be honoring the high interest rates promised to them by Old Southern Bank of Orlando. Centennial Banks response was that they could not afford to pay such high rates and suggested customers trade their certificates of deposit in for one of the new bank’s products. The problem for CD holders is that some would be trading a CD that was paying 4.7 percent in for one earning 1.3 percent, which most agree is not anywhere near a fair trade.

CD Holders Speak Out

Some elderly bank customers, who are living on a fixed income, are speaking out against what they see as unfair treatment from the bank. One 80-year-old bank customer said, “That hurts a lot for someone living on a fixed income. It really shocked me. I mean, I thought when you have a CD, it’s just like a contract. And for them to break it, well, that seems to me to be just wrong.” Another bank customer estimates her loss is $2,000 a year for the trade-in of her high yielding certificate of deposit for a much lower interest rate on a new CD. What is infuriating bank customers even more is that Centennial Bank is one of the recipients of the $50 million of bailout money from the federal government’s Troubled Asset Relief Program (TARP). In response, one bank customer says, “Here they’re getting this government TARP money, while we’re the little people who end up losing out.”

CD Interest Rate Controversy

Aside from the interest rate controversy it has been smooth transitioning. The takeover started about two weeks ago, when Centennial Bank acquired the Old Southern Bank of Orlandos deposits and assets. The unexpected bank failure took customers by surprise because the Orlando-based operation had been a community bank for almost 20 years. The spokespeople for Centennial Bank recognized that approximately ten percent of Old Southern Bank customers were adversely affected by their inability to honor the old banks rates. Bob Garrison of Centennial Bank says, “There was a period a couple of years ago when rates in the Orlando market were extremely high, driven by Washington Mutual, Wachovia and others. Old Southern put some CDs on its books then that were in the 4.5 percent range. But today’s market has changed dramatically, and it’s just not prudent for Centennial to sustain such rates.”

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