'Industrial banks' a mystery? One offers top CD rates

Jar filled with pennies

The 30 or so depository institutions at which I have CDs include a variety of banking types and locations.

Some are national banks; others, federal savings banks.

I boast various state-chartered commercial banks, savings banks and credit unions.

But Sallie Mae Bank (www.salliemae.com) stands out. It’s a Utah-chartered "industrial bank" owned by the big student lender.

I’ve found other industrial banks, or industrial loan companies as they are also known, lurking out there on CD rates boards (some offering CDs nationwide), organized in Utah, Nevada or California.

These include Transportation Alliance Bank (www.tabbank.com), Beal Bank USA (www.bealbankusa.com) and Centennial Bank (www.centennialbank.com).

I confess I don’t usually study the type of bank I’m putting my money in or where it’s established.

It’s hard enough navigating the Truth in Savings disclosure and deposit account contract, without combing through federal or state banking laws as well.

But I recently remembered that the only bank that ever went belly-up with my money still on deposit -- Advanta Bank Corp.-- was an IB-organized bank in Utah.

So I decided to see whether these institutions are on the up-and-up and whether my funds are at greater risk there.

Fortunately, I found nothing of concern to me as a depositor.

Most importantly, the IBs listed on websites like this one are FDIC-insured and FDIC-supervised.

Also, they’re subject to the same banking department regulation as commercial banks chartered in their states.

A raison d’etre, however, for some IBs is that big non-banking companies can own them free of the federal Bank Holding Company Act.

You see, the inconvenient thing about being a "bank holding company" (apart from regulation by the Federal Reserve) is the requirement that you engage only in businesses "closely related to banking."

Thus, if Exxon wanted to buy a bank, it would have to get out of the oil business.

So the parent company is free from federal oversight. Another big difference between regular banks and industrial banks -- as least in some states where they are chartered -- is IBs can't offer checking accounts.

I don’t need any more checking accounts. I need more FDIC-insured CD accounts with decent interest rates.

Although Sallie Mae’s current 1.30% APY is a laggard in the 36-month maturity I care about, its 12-month rate (1.20% APY) is a national leader.

Right now, there’s a temporary federal moratorium on new IB charters, originally triggered by a Walmart request to the FDIC to set one up.

But I don’t care about the moratorium.

Like checking accounts, I don’t need any more banks.

I have plenty already, thank you.

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