This post is part of a series where personal finance expert Dan Solin looks at money moves that may seem smart in tough economic times, but are actually quite dumb. See all 12.Life used to be very easy. If you were looking for safety, you drove (or walked) to your friendly neighborhood bank and purchased an FDIC insured Certificate of Deposit. While the interest earned may not have been earth shaking, at least you knew your money was safe.
These days, bank failures are almost daily news. We have seen IndyMac, First National Bank of Nevada and First Heritage Bank go under in the past few weeks.
So is your money still safe?
The answer is: maybe.
You should check to determine if your bank is insured with the FDIC. You can do this by using the FDIC's Bank Find service or by calling the FDIC at 1-877-275-3342.
Deposit insurance is limited to $100,000 for regular deposits and up to $250,000 for IRA deposits. If your account exceeds those amounts, you are at risk.
If your FDIC-insured bank fails, the FDIC promises that you will have, "prompt access to your insured deposits."
Nevertheless, prudent investors should do some due diligence on the safety of their bank. No one wants to go through the anxiety of seeing their bank fail, even if they will be able to recoup their insured deposits. Checking on the safety of your bank should be mandatory if your deposits are not insured.
A quick and easy way to check out your bank's safety is to go to Bankrate.com and research its "Safe& Sound" ratings.
Bankrate uses a simple star system to determine bank safety, ranging from 1 to 5. The safest rating is "1." The worst rating is "5."
In these uncertain economic times, it may be prudent not to stash your cash in just one bank, even if your deposits are fully insured by the FDIC.
Dan Solin is the author of The Smartest Investment Book You'll Ever Read (Perigee Books, 2006) and The Smartest 401(k) Book You'll Ever Read (Perigee Books, 2008).
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Reader Comments (Page 1 of 1)
8-06-2008 @ 7:59AM
Dave Stout said...
I have several 12 month CDs in one bank at maturity they will be worth slightyly less than $100,000. Does FDIC insure each account with a common bank or is the $ 100,000 for all acounts in my name?
8-06-2008 @ 8:22AM
Leah G said...
Irony at work? A morning's visit to Bankrate.com and the banner ad at the top is advertising a great rate on a 9 month CD at IndyMac...going further the site gives it a 5 - rating....yet the ad?? Is advertiser revenue trumping common sense?
8-06-2008 @ 2:58PM
JIM H said...
It seems dumb money move # 1 would be taking this guys advice. Bankrate.com gives the best institutions a 5 star rating and the worst a 1 star rating. Dan Solin says the opposite. I hope he corrects his error. It's the type of error that can cause great harm.
8-09-2008 @ 12:52PM
SueZQ said...
"Friendly neighborhood bank?" make that BANK. Some really big interstate banks are wobbly, too.
8-06-2008 @ 4:14PM
Dan Solin said...
The rating system employed by Bankrate.com is a little confusing. The blog accurately states that "[T]he safest rating is "1." The worst rating is "5." However, it is also accurate to note that Bankrate gives 5 stars to banks rated "1." The blog hyperlinks to the bankrate web page where this is explained. I should have drawn the distinction more clearly when I described the numerical system so that it would not be confused with the star system.
Dan Solin
8-06-2008 @ 7:47PM
theatrewitch said...
This guy is giving you all only part of the facts. While it is true that INDIVIDUALS are insured only up to $100K ($250K on IRAS) it is NOT the only way to insure your money through FDIC. If you have a joint signer on accounts, for instance, the insurance doubles to $200K ($100K for each owner) If you have named beneficiaries (known as a Formal (Family) Trust, Totten trust or Payable upon death), so long as they are "Qualified" beneficiaries (meaning they are directly related to you i.e. Grandparents, Parents, Siblings, Children & Grandchildren), you are insured SEPARATELY from other account ownership types. Insurance is $100K per owner per beneficiary. If you have an account with one owner (you) and two family beneficiaries that is insured $200K. The only time this type of security doesn't work is when you either have more money than family or you have outlived your family (or you've disowned them). While banks are out to make a profit, their business is customer service and keeping their clients happy and secure. Ask them to review your accounts. They all have FDIC brochures that explain how the insurance works in detail. If your bank isn't approachable, then you probably should shop for a more customer friendly institution. The reality here is that the media have blown this "banking crisis" out of all proportion, creating a "Chicken Little" headspace in the consuming public, causing panic or, at the very least, mistrust. Before freaking out about IndyMac and the other bank failures, realize that is only 3 institutions out of 8500 in the US alone. Do your homework, for sure, but don't take the "talking heads" on the tube and the 'net at face value. Scandal makes sales, so what makes anyone think they won't trump up a story to sound gorier than it is?