The small group of people huddled together at the huge lobby of the 5th floor of the Bangko Sentral ng Pilipinas stuck out like a sore thumb. Some were retirees, others were businessmen, homemakers, young couples – there really was no single word to describe most of them except they were all desperate…desperate to get their deposits back.

A big part of a financial journalist’s life is interviewing all sorts of people. Normally that gives me such a high because I’m endlessly curious about everything, anything and anyone. But somehow, talking to victims of banking closures always left me depressed.

I still remember that day very well. The 1997 financial crisis caused quite a few banks to go belly up and this bank was one of them. Desperate depositors came together to plead to the central bank to do something.

What could you say to someone who told you his family’s life savings went pffft, just like that. He went to the bank one day only to find that it was on a “bank holiday”, meaning it would not be opening its doors to business.

They all told the same story. The bank offered interest rates that were simply fantastic, beating other banks in the area. Blinded by the high deposit rates, they rolled over their time deposit again and again, not knowing that that was the last time the would see their money.

Another bank holiday, another group of desperate depositors, the same story. It happened again and again. No one would say it out loud, but the writing was on the wall: banks that are desperate to float try to attract cash by raising their interest rates. But that stop gap measure only leaves them floundering.

Noet Ravalo explained this at length in his column. He explained how banks operate to two readers who said they were being offered high interest rates by rural banks.

The economy is so much different now than in 1997 – the macro outlook is looking good, the stock market is booming, interest rates are low and inflation is low. However, I have been hearing a lot about small banks offering very high interest rates.

That kind of talk always gets my alarm bells clanging loudly. I sincerely hope I am wrong and that these banks have some investment secret that other banks don’t have. But if I’m right, we are looking at some depositors again becoming desperate to get their money back.

Remember those people I mentioned earlier? At the end of the day, the PDIC guarantee was not really a comfort to them.

Like I said earlier, don’t chase returns. Always do due diligence. Noet says:

Make a judgment if the deposit rates these rural banks are offering seem reasonable to you given its environment and business because, no matter how you spin the calculations, these are the hurdle rates the bank must face to continue doing what it is doing.

The insurance provided by PDIC is a safety net. It should not be counted on as a first way out. The insurance should not give you a false sense of security. The point here is a commonly cited tenet in risk management: 100 year wars do not happen often but they do happen. And when they happen, the chances of you outlasting the war aren’t too bright either.

When all have been said and done, the ultimate issue goes back to something Chester asked. It would still be part of your due diligence to judge the stability of your potential bank. It is your money so take the pain to make an informed choice of which bank you can trust with your money.

What was that again? “When it’s too good to be true…it probably is.