The word on the street is that JP Morgan Chase is buying parts of Washington Mutual after the FDIC seizes the country’s largest thrift. I guess all the reports of WaMu’s demise were not so greatly exaggerated.

The government on Thursday made the largest bank seizure in American history, taking over Washington Mutual, the severely troubled savings and loan, and selling pieces of it to JPMorgan Chase in an emergency deal intended to avoid sticking the taxpayer with a bill for another bank, according to people briefed on the plan.

Game over WaMu.

(WaMu account holders should read this FAQ that Chase published to learn what’s new)

Government Seizes WaMu and Sells Some Assets [New York Times]
JPMorgan Chase May Acquire Washington Mutual After FDIC Seizure [Bloomberg]

Update: The 5.0% APY Online CD is no longer available and the rates quoted in this article are out of date – read this list of best CD rates for current rates.

A month or so ago, Washington Mutual (WaMu) offered a 5.00% APY 12-month CD, one of the best interest rates on a 12-month CD available (I wrote a post listing the best CD rates available, updated weekly). ING Direct’s 12-month CD is 4.00% APY and HSBC Direct’s 12-month CD is 3.70% APY, WaMu is offering a rate that’s a full point higher for the same term. (If you check Bankrate’s list of CDs, the national overnight average is 3.69% APY, WaMu’s CD isn’t even listed)
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WaMu failed and was acquired by JPMorgan Chase, if you don’t have an account yet, I recommend going with FNBO Direct or one of these high yield savings accounts.

Washington Mutual sent me an email today indicating that they will be increasing their high yield savings rate from 3.75% APY to 4.00% (at midnight tonight, if you read this on Monday), which will beat all the banks on my list of best online savings accounts by at least half a percent (FNBO Direct is second with a 3.50% APY interest rate).

Nothing else will change about either the Free Checking or the Savings account offer, you can read my brief WaMu review to learn more about the accounts.

There have been concerns lately that WaMu was facing some liquidity concerns (mostly in the chaos that was last week, but the FDIC did send a MOU) but they are FDIC insured up to the same $100,000 as every other insured bank. WaMu benefits from the fact that its short term financing can come from deposits, rather than short term borrowing, so it’s not as exposed as investment banks. If the liquidity issue still concerns you and you don’t trust that FDIC will make you whole (it will), your next best option is FNBO Direct with a 3.50% APY rate or opening a CD somewhere else. I haven’t read a single thing about them having problems and they too are FDIC insured.

With all the recent bank failures and looming potential failures (WaMu is on everyone’s radar now), a lot of people are worrying about and searching for information about FDIC insurance. The FDIC, short of the Federal Deposit Insurance Corporation, is a government corporation that insures banks deposits up to, generally, $100,000. The corporation was created after the Great Depression to dissuade individuals from going to banks and withdrawing their money if they though the bank was going under. With the insurance protecting the deposits, there would be no need for people to ‘run’ to the bank to withdraw their funds before a potential collapse. With many banks, a bad situation is made fatal because of a run.

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For anyone wondering what will happen to HSBC Direct’s 3.50% APY, wonder no longer. As of today, 9/16, the rate will fall from 3.50% APY to 3.25% APY. It appears that they’re shifting emphasis over to their CDs from their online savings account as the 6-month CD rate is 3.75% APY, 0.25% higher than the original savings account rate. Oddly enough, their 12 month is giving 3.70% APY.

Of the best savings accounts, this puts Washington Mutual with their 4.00% APY online savings account rate farther ahead though the liquidity and capitalization concerns pushed their stock down BIG on Monday. If you are worried that they’ll go under, FNBO Direct (division of First National Bank of Omaha, which has been in business since 1857) is offering a 3.50% APY and there hasn’t been a peep about them having solvency problems.

This is only a concern for people wondering where they should put their next dollar. I wouldn’t move my funds from HSBC Direct to FNBO Direct or WaMu because the 0.25% to 0.50% APY difference isn’t worth the interest you would lose as the funds shifted from one account to another.

WaMu Fails, Try 2.80% APY FNBO Direct

WaMu was recently acquired by JPMorgan Chase, which is a bank not known for its high interest rates. You should consider all rate information in this post to be out of date and likely to drop as the transition takes place. My recommendation is that you stand pat if you do have a WaMu account but if you’re looking for a high yield savings account, FNBO Direct is your best best with a 2.80% APY and no hint of news about failure. You can check out this FNBO Direct review for more information about them.

At the request of a reader, and because I enjoy wrecking my attempts to simplify my personal finances, I just opened a Wamu Free Checking and Online Savings account, the only bank I didn’t have an account at on my list of high yield savings accounts. (I also did it because Nickel said it might be interesting to see an FDIC takeover from the inside, should that ever happen with WaMu (the media reports aren’t looking good though)).

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All eyes have been on the Treasury Department taking Freddie Mac and Fannie Mae into conservatorship this week but Washington Mutual also entered into a Memorandum of Understanding with the Office of Thrift Supervision, the regulator that manages certain banking institutions (here’s the difference between thrifts, commercial banks, and credit unions). Along with the MOU, they got rid of their CEO Kerry Killinger and put in Alan Fishman, who started Monday.

Some see the memorandum of understanding as a precursor to a bank’s failure but it’s just an agreement for a higher level of information sharing between the OTS and the bank. According to one spokesperson, it was only an “informal enforcement action.” It’s certainly worse than a bank without an MOU but having one doesn’t mean failure is imminent. The MOU requires that WaMu share more of its operational level details with the OTS so that they can monitor its activity, it makes no changes to WaMu’s operations, offerings, or general business model.

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One of the biggest concerns people have about online banks is that, for many of them, you can only access them through the web. With these simple techniques, you can mitigate the severity of that risk and take advantage of their high yields without putting yourself in a bad situation.

Recent Online Bank Access Problems

First, is this even a valid concern? I think so.

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