Washington-area banks and thrifts are currently paying the highest interest rates in the nation on customers' certificates of deposit. While that may be good news for savers, it's a bad sign for the region's banking industry.

The high rates, which have been tops in the nation since mid-August, reflect an aggressive bidding war for money, a classic sign of banking distress that first appeared in Texas in the mid-1980s when that state's economy was weakening.

To keep nervous depositors' cash flowing in, Texas institutions jacked up rates as much as 1.5 percent higher than comparable rates offered nationally. Although rates in the nation's capital haven't reached that high a premium, local bankers are paying more for customer funds than bankers in New England, where the economy and the financial institutions are considered to be in far worse shape.

Surveys show Washington-area financial institutions have been among the top rate payers for at least the past year, taking the No. 1 spot in June and then losing out to Boston in the latter half of July and early August. Area banks and thrifts have outpaced the rest of the nation since the week of Aug. 13.

Last week, Washington-area bankers offered an average rate of 7.95 percent on six-month certificates of deposit, and an average of 8 percent on 12-month CDs -- nearly half of a percentage point above the average for banks and thrifts in the 10 largest metropolitan areas, according to Bank Rate Monitor, a Florida newsletter that surveys rates nationwide.

"The difference between Washington and New England is that we know where New England is -- we know it's in a recession," said Nancy Bush, a banking analyst with Brown Brothers Harriman & Co. in New York. "We don't know yet what's going to happen in Washington, and neither do the banks. You've got a number of institutions in trouble, and they're trying to find a balance between the rates they can pay and the money they need to attract to stay healthy."

The downturn in Washington's commercial real estate market has forced nearly every banker in town to set aside cash reserves to protect against possible loan losses, a move that pinches cash flow and increases the need for new deposits. But at the same time that demand for deposits is increasing, depositors' fears about the financial health of area banks and thrifts is growing, forcing the extra premiums, Bush said.

"It happened in Texas, and it's already happened in Boston," she said. "You're just the next guys on the list."

Although certificates of deposit are covered by federal deposit insurance up to $100,000 per customer account, depositors' jitters mean bankers have to compete harder for customers who may be inclined to put their money into brokerage firm money market accounts or other investments unrelated to banking.

In Boston, the rate jump was sparked last spring when financially ailing Bank of New England Corp. offered a nine-month certificate paying nearly 9 percent. After almost six months of ever-increasing CD rates, New England institutions have cut back in part because they have the money they need but mostly because the extremely high interest rates began to cut into profits, analysts said.

Bank of New England and Bank of Boston are under pressure because the rates they were paying to attract funds were almost as high as the rates they were receiving on their loans, the analysts said. Washington area institutions, they warn, are likely to fall into the same trap.

Another danger of this strategy, experts warn, is that it attracts so-called "hot money" -- large amounts deposited by customers who are simply looking for the best rates. Those customers are quick to move their funds in and out of the bank, creating an unstable deposit base.

Leading the charge in aggressive rates in this area is NVR Savings Bank, which is advertising a 15-month certificate with a rate of 9.4 percent, far above the average 7.58 percent offered nationally for a 12-month CD. Others pushing hard to pull in customers are Maryland National Bank, American Security Bank, Columbia First Bank and Meritor Savings. Not coincidentally, all of these financial institutions have been hit by the downturn in the area's commercial real estate market.

The high rates being offered by these institutions are causing many others to follow suit, forcing the average interest rate higher and higher, according to analysts who say they expect this competitive spiral to continue for the next few months.

Like the Texas CDs of the mid-1980s, local certificates are being cloaked in reassurance, with names like the "Secure CD" from NVR Savings, and the First Virginia Bank CD that is advertised as offering "Safety" in addition to the "Great Rate."

Still, analysts note, the marketing tactics have not reached the level of desperation of the Texas bankers, who ultimately resorted to giving away Rolex watches and fur coats to attract depositors' money. Washington-area bank and thrift executives did not return phone calls or declined comment on the high rates they are paying.