Uninsured savings accounts

In early December, when the average interest rate on one-year certificates of deposit offered by U.S. banks was hovering at 3.2 percent, an online bank's offer sounded enticing: rates of 5.5 to 6.5 percent on one-year CDs. The bank says its "Premium" CDs are for the investor who is "looking for an alternative to the low rates offered by most domestic banks" and a guaranteed rate of return to avoid market fluctuations.

That high rate might be "guaranteed," but there's no federal guarantee backing the money you deposit. That's because the offer came from Millennium Bank in St. Vincent and the Grenadines, in the West Indies, and the bank is not FDIC-insured. Millennium says it is a wholly owned subsidiary of United Trust of Switzerland and devotes space on its Web site to describing Swiss banking. It notes that "the main reason for Swiss Banking is to keep one's financial status private, protecting personal assets along with receiving a higher return."

Millennium encourages customers to use its secure online banking services, but it says there is no Web site providing information about United Trust of Switzerland because its "premier private clients" don't trust the security of public Web sites.

We checked with the Swiss Federal Banking Commission, which says that United Trust is registered as a management-consulting firm and that neither it nor Millennium Bank is supervised by the commission. The International Financial Services Authority in St. Vincent confirms that Millennium is registered as an offshore bank operating on the island but would not comment further.

When we asked Millennium employee Bob Kelty how the bank invested depositors' money to achieve such high returns, he declined to explain, saying, "That's proprietary information."

What to do instead

Some CDs, money-market accounts, and other savings alternatives might not be FDIC-insured, so you need to be careful and shop around. Bankrate.com, which publishes online bank data, lists federally insured banks, along with a "Safe & Sound" rating assessing overall financial stability.