PHILADELPHIA -- Just two weeks after First Fidelity Bancorp agreed to buy failed Atlantic Financial Federal, David Goldwasser got a shocking piece of mail.
The interest rate on his Atlantic Financial certificate of deposit was being cut, from 10 percent to just over 5 percent.
"I didn't know that they could do this," said the retiree, who lives in Bala-Cynwyd. "It kind of surprised me. I'll bet it surprised a lot of other people, too."
Mr. Goldwasser was right. Up to 30 percent of Atlantic Financial's depositors have learned that their CD rates will be slashed by First Fidelity. Most of them were stunned, and it is all perfectly legal.
When a failed bank or thrift is sold, the buyer does not have to honor the interest rates promised by the failed institution.
That may surprise CD investors who thought their contracts were ironclad.
"We understand that people are angry,"said Paul Levine, a First Fidelity spokesman. "But we are offering what the market is paying for CDs right now."
For most of the Atlantic Financial customers, the rate reductions could not have come at a worse time. Interest rates have plummeted in the last year, and it will be nearly impossible to match the rates they got from Atlantic Financial.
If there is a lesson to be learned, it is this: Be careful when buying CDs from a financially ailing bank or thrift. Although your deposit may be insured by the Federal Deposit Insurance Corp., the interest rate is not guaranteed.