With bank CDs offering meager yields, hovering just over two percent on BankingMyWay’s CD Rate Tracker this week, rate chasers may feel they have nowhere to turn for a better deal. But for the hardier bank customer, a troubled bank may be more aggressive about using higher rates to attract more customers.

If you learn how to walk the tightrope, higher CD rates at weaker banks may be yours for the asking, but only if you act fast. Uncle Sam is watching closely, so today’s good deal may be tomorrow’s financial risk.

Case in point: Ally Bank, a unit of GMAC has a whopping 2.80% APY on a one-year CD – light years away from the average 1.30% 12-month CD rate on BankingMyWay’s Rate Tracker. The American Bankers Association points out that GMAC has been the beneficiary of two federal bailouts during the past six months worth $12.5 billion, and that by allowing Ally to attract investors with higher CD rates, the government is rewarding more risky behavior from a troubled bank.

“ABA believes it is completely inappropriate, and indeed risky, for GMAC/Ally Bank to be allowed by the regulators to continue to pay rates well above the market,” the trade organization stated in a letter to the Federal Deposit Insurance Corporation.

Ally takes a different stance. In a defiant letter to the ABA, GMAC Chief Executive Alvaro de Molina wrote: “We intend to use all of our resources to deliver fairly priced credit to small businesses and consumers that need it… these loans will be funded, in part, by deposits which offer an attractive return for consumers that have money to invest.”

Risks Exist
But some weaker banks that offer high CD yields do go under. That’s what happened to Atlanta-based Omni Bank, which had been heavily promoting its high-return CDs. But the $986 billion bank was forced into closure by the U.S. Office of the Comptroller and the FDIC on March 27, 2009.

So if you want to tip toe into the troubled bank CD market here are a few tips.

• Avoid, or at least be patient, with the big national banks, especially ones that have passed the recent Federal Reserve’s “stress test.” Banks like Wells Fargo (Stock Quote: WFC), which seem to be in better shape these days, have little enthusiasm for raising CD rates significantly, as long as anxious investors keep lining up at the door for "safe haven” investments from the roiling economy.  That could change if the economy http://www.bankingmyway.com/save/savings/recession-hits-social-security-increases improves, and more investors lean toward stocks again. With Treasury yields rising, that could happen sooner rather than later.

• For the truly adventurous, aim for regional or local banks that are aggressively advertising higher CD rates. Each week, BankingMyWay offers a “Deals Of the Week” column where you can find great deals at local and regional financial institutions. In addition, you can cover a lot of ground both with online banks and banks and credit unions in your area with BankingMyWay’s CD Rate Search, as well.

• Keep your eye on Uncle Sam. On May 29, the FDIC stepped in and issued an executive order limiting banks that issued interest rates that "significantly exceed" prevailing market rates if the financial institution is seen by the government as “not well capitalized.” In a press release, the FDIC noted that the list of troubled banks as growing at a rate of 21% in the first quarter of 2009, to 305 banks. The FDIC’s aim is to impose interest rate ceilings on financial institutions that are short on capital.

You can’t blame the FDIC in trying to control aggressive CD rate campaigns at under-capitalized banks. After all, they have to pay the freight when such banks go under.

But that doesn’t mean you still can’t get a crack at some good rates  - as long as you know where to look, and know how much risk you’re taking.

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