Should you jump for high-interest savings through troubled Citibank?

Of late, very competitive rates for FDIC-insured savings, CDs, and money-market accounts have been offered by troubled banks such as Citibank and GMAC Bank, owned by General Motors. The FDIC says those deposits are covered by the same, super-safe federal insurance as every other insured deposit. Even if an ailing bank is acquired by another bank or the government, the money is still insured. Depositors generally can make deposits and withdrawals the day after the acquisition. (Click here for more information on dealing with banks in trouble.)

But here's a catch: If the government takes over a failing bank, the FDIC doesn't have to honor the bank's interest rates.  A 1991 law, the result of the last big banking scandal, says the FDIC may lower a bank's interest rates to current market levels to make the bank more attractive to potential buyers. That includes CDs, which you might have considered ironclad contracts.

The good news, such as it is: If accountholders don't like the new rate, they can withdraw their money without suffering early-withdrawal penalties normally associated with CDs. "They can just knock on their bank's door and the bank will have to honor that," says David Barr, a spokesman for the FDIC. (Folks with CDs in IRAs, take note:  Your early withdrawals are still subject to IRS penalties and taxes if you're not yet 59 1/2.)

The interest-rate-change rule only applies when the government takes over a bank. If one bank buys another, it has to honor that original CD rate, Barr says.

If the specter of losing a great interest rate gives you pause, check with interest-rate comparison sites such as www.bankrate.com to see if a healthier bank is offering as good a rate--or better. Or take your chances, with the understanding that in the unlikely event the bank goes into receivership, you may have to move your money elsewhere.

For more from Consumer Reports Money Adviser on finding safe places for your money, click here.

--Tobie Stanger