NEW YORK — Clarification: In last week's column on high-rate certificates of deposit, Jane Bryant Quinn quoted the "average annual yields" on 2 1/2 - and five-year certificates of deposit. Average annual yields take the total amount you earn from a CD over the whole term and divide by the number of years you held.
Metropolitan Bank in Arlington, Va., for example, pays a stated rate of 7.9 percent; compounded quarterly, that's an annual compounded yield of 8.14 percent. But over the certificate's full five-year term, you earn an average of 9.6 percent a year. Savers will earn the full amounts stated in the column. But when you call the banks, they may quote the annual percentage rates or compounded rates, rather than the average annual yield.
In Sunday's Sun, Jane Bryant Quinn's column gave an incorrect safety rating for MBNA in Wilmington, Del. According to Veribanc rating service, MBNA holds the highest safety rating. The column also used "average annual yields," a non-standard method, for determining the amount of interest earned on long-term certificates of deposit. Investors will earn the full amount stated in the column. But that may differ from rates quoted by banks and thrifts, because they generally quote annual percentage rates for CDs.
FOR THE RECORD - CORRECTION
NEW YORK -- Stop me if you've heard this one.
The nation's most attractive interest rates on certificates of deposit can be found at some of the riskiest banks.
Last week, they were paying as much as 6.9 percent on one-year CDs -- 0.8 percentage points more than the national average. Five-year CDs paid 9.8 percent -- 1.4 percentage points above average.
For savers, these are terrific buys. The soundness of your bank doesn't matter, as long as your deposits are federally insured.
Five years ago, I was making this same point about high-risk savings and loan associations. They foundered, at an probable loss to the taxpayers of $500 billion to $750 billion-- but with no loss to insured depositors.
Now, troubled banks are following a similar path.
As of last March, a record 45 in solvent banks were taking deposits and making loans, according to Veribanc in Wakefield, Mass., a firm which studies the safety and soundness of banking institutions. That's up from 41 at the end of December.
These banks stay open for exactly the same reason that scores of dead S&Ls spent so many years on life supports. The federal bank insurance fund is rapidly running out of money. So it cannot move as swiftly as it should to force bad banks out of business, says Veribanc President Warren Heller.
But as the S&L mess shows, it doesn't matter if the deposit insurance fund runs dry. The Treasury will put up the money. You can, er, bank on it.
Your money is federally guaranteed, as long as your insured account doesn't exceed $100,000.
You might call this a paradox of risk. A troubled bank makes more sense for savers than a sound one. You can walk the high wire on interest rates, yet rest snugly in the hold of the federal safety net.
If your bank should actually close, you'll be repaid by the Federal Deposit Insurance Corp. Local customers can usually get their money the next business day. Long-distance customers can speed their payoffs by using Express Mail.
Most weak banks, however, are bought by stronger institutions and continue in business under a new name. The new owner may lower the interest rate on your certificate of deposit.
In that case, however, you're allowed to withdraw your money, without penalty, even though the term of the CD isn't yet up.
High interest rates are not the exclusive province of tottering institutions. A few banks with top safety ratings are competing strongly for deposits today. These banks may, in the future, get into trouble. But for now, they appear sound.
As of last week, the following banks paid among the highest interest rates in the nation, according to the publication "100 Highest Yields," which is based in North Palm Beach, Fla. You'll find each institution's Veribanc safety rating in parenthesis, with 3 the highest and 0 the lowest. You can get the banks' telephone numbers from the information operator.
* For money-market deposit accounts: 6.3 percent at Columbia S&L, Irvine, Calif. (safety rating: 0); and 6.2 percent at Standard Pacific Savings, Newport Beach, Calif. (safety rating: 3).
* For six-month CDs: 6.6 percent at Citytrust, Bridgeport, Conn. (safety rating: 0); and 6.5 percent at First Federal Savings Bank ,, of Delaware, Wilmington (safety rating: 3).
* For one-year CDs: 6.9 percent at MBNA, Wilmington, Del. (safety rating: 1); and 6.9 at LaSalle BankLake View, Chicago (safety rating: 3).
* For 2 1/2 -year CDs: 8.1 percent at CitibankSouth Dakota in Sioux Falls (safety rating: 3). Close behind are the LaSalle Bank and MBNA, mentioned above.
* For five-year CDs: 9.8 percent at MBNA, and 9.6 percent at Metropolitan Bank for Savings, Arlington, Va. (safety rating: 3).
A5 You can bank with all these institutions by mail.