The Safest Online Banks: Is Your Savings Account in Jeopardy?
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FacebookGiven the recent spate of bank failures, I though I’d put together a quick rundown of the safety ratings of eight of the best online savings banks. This list is based on Bankrate’s “Safe & Sound” ratings* of the financial condition of their parents companies:
- FNBO Direct – 4 stars
- Everbank – 4 stars
- Ally (formerly GMAC) – 3 stars
- WT Direct – 3 stars
- ING Direct – 2 stars
- HSBC Direct – 2 stars
- E*Trade Bank – 2 stars
- Dollar Savings Direct – 1 star
- Emigrant Direct – 1 star
Or… If you’re looking for a significantly higher yield than a regular bank can offer, and you don’t mind taking on some additional risk, you might want to check out Lending Club. It’s not FDIC-insured, but annual returns have averaged 9.05% APY over the past 18 months. It’s free to open an account, and you can get started with as little as $25.
Also be sure to check out my list of online bank interest rates, which I update frequently.
*Definition of ratings:
5 stars – Superior
4 stars – Sound
3 stars – Performing
2 stars – Below peer group
1 star – Lowest rated
See also: The Safest Banks (Updated!)
Published on July 16th, 2008 - 28 Comments
Filed under: Banking, Online
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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28 Responses to “The Safest Online Banks: Is Your Savings Account in Jeopardy?”
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July 16th, 2008 at 6:55 am
How exactly does Bankrate figure this out? From their site they:
“measure the capital adequacy, asset quality, profitability, and liquidity (CAEL) of each rated financial institution.”
I guess I’m just surprised to see a jump from 5-star first-place rating down to ING at 3 stars. What is Wamu doing that’s so special?
July 16th, 2008 at 10:20 am
I would be careful. I used to have accounts at NetBank and they were a constant 2-star rated institution before they disappeared from the earth…
This is making me a bit nervous about my accounts at EmigrantDirect…perhaps return is not always a good thing to be chasing…
July 16th, 2008 at 10:25 am
If you want a safe online bank, check out State Farm bank. Very safe, as parent company not in the subprime (or prime, for that matter) mortgage biz. Rates not the best, but they are OK. Also, check out Principal Bank; they exited the mortgage biz several years ago. We used to have checking / savings with them (we switched to WAMU when Principal sold them our mortgage), and we have a couple CDs with them.
July 16th, 2008 at 10:29 am
Bankrate just takes the CAEL ratings and flips them around such that 5 is the best and 1 is the worst (for CAEL ratings, 1 is best and 5 is the worst). As you noted, the CAEL numbers are based on a number of financial indicators related to the solvency of the bank — do they have enough money? are their holdings sufficiently liquid? Etc. As for why particular banks fall out where they do, your guess is as good as mine. They don’t provide that level of detail.
July 16th, 2008 at 10:31 am
The nice thing about being not-rich is that I’m well below the FDIC limits.
July 16th, 2008 at 1:08 pm
Out of all the banks on the list, I would be most worried about Washington Mutual since these guys are highly exposed to the mortgage fallout. It’s just a matter of time that this bank fails. Have you seen their stock lately? Exactly.
July 16th, 2008 at 2:32 pm
I’m surprised to see WaMu rated first as well. As for my personal experience, I really like my ING account. Like you, I am also safely within my FDIC insured limits, so I just appreciate the excellent customer service, and don’t worry too much about it.
July 16th, 2008 at 3:53 pm
Be careful about the WAMU rating … there are really two WAMUs, one incorporated in Neveda, and the other in Utah. One has a five-star rating, and the other only a one-star rating. I’d be interested to know which is the ‘real’ WAMU? Check out http://www.bankrate.com/brm/safesound/ss_home.asp for more info, or to look up your own bank.
July 16th, 2008 at 5:56 pm
I can’t imagine why WM would be number one in anything at this point. WM’s management has a lot to prove and fast. The company is teetering on the edge right now.
I would feel much better having an HSBC account than a WaMu account.
Yesterday I put WM in my top five list of banks that could fail.
http://hubpages.com/hub/Which-.....rouble-now
July 16th, 2008 at 8:14 pm
This is an excellent blog. I have an online savings account, but my bank isn’t mentioned. I am going to have to look around for a bank to use with my business checking when I start my new business in a few months, so I am glad I caught this. Thanks!
July 16th, 2008 at 10:25 pm
Something to keep in mind is the fact that different ratings agencies have posted different ratings for ING Bank — i.e., the USA bank dba ING Direct, chartered in Delaware, and the primary commercial US branch of ING Groep NV, the Netherlands financial giant. The FDIC’s website points people looking for bank ratings to AM Best, Bauer Financial, and Bankrate.com. Bauer gives ING Bank 4 out of 5 stars. AM Best doesn’t rank ING at all. Other ratings agencies, like Fitch Ratings and TheStreet.com, have ING Bank all over the place.
I’m an academic librarian, and I have access to a number of business databases. After reading today’s post, I went looking for articles in the trade journals about ING. This may be telling: there were a number of articles in the business/trade press about ING’s sitting pretty due to its avoidance of the subprime mess (for example, Fortune, 3/17/2008, “ING dodges subprime”). An article about safe places for your money in the August 2008 issue of Kiplinger’s Personal Finance recommends ING Direct (”When it comes to your cash, think safety”). And finally, ING Americas’ CEO, Thomas J McInery, recently gave an interview to the NYTimes (NYT, 04/19/2008, “When the focus is expansion, not subprime worries”) in which he said that ING had very little exposure to subprime and Alt-A lending, so any fallout due to the subprime mess was very limited where ING was concerned. Something I found really interesting is that “Credit Union Management,” a top journal for professionals in the credit union industry, has a couple of articles in its July 2008 issue that praise ING Direct for its simplicity of offerings, transparency and customer service (”Serving Main Street”; “ING Direct the new CU?”) — much like a credit union.
In short, the consensus in the business/trade press is that ING Bank is solid. Well, that some comfort, I hope …
July 18th, 2008 at 12:20 pm
Is there a Rating List for Credit Unions ??
July 21st, 2008 at 9:24 pm
WaMu’s Bankrate ratings are confusing due to WaMu’s two FDIC charters.
Cert # 32633 based out of Henderson,NV has $184 billion in deposits and has a 1-star rating @ bankrate
http://www.bankrate.com/brm/sa.....1000508551
Cert # 33891 based out of Park City, UT has only $1.4 billion in deposits. This one has the 5-star rating @ bankrate
http://www.bankrate.com/brm/sa.....1000511905
So the main WaMu Bank appears to be the one in Nevada which has the 1-star rating.
July 21st, 2008 at 9:26 pm
About a ratings list for credit unions, Bankrate also provides the same ratings. Just select credit unions instead of banks at the bankrate’s safe and sound page
http://www.bankrate.com/brm/safesound/ss_home.asp
July 23rd, 2008 at 12:14 pm
What a terrific site!
Thanks for the helpful,updated information on banks.
I have made changes.
Unfortunately, we have drifted into unchartered territory,there is no recovery.As with the climate,a page has been turned within the economic structure and we are into a chapter that no one’s familiar with.Any guess is as good as another and listening to educated experts can be financially devastating.
That being said,if it looks like a storm,then prepare for one.
Use common sense,we have it for a reason.
If your fortune is entirely virtual,then you have nothing.
Forget about penalties and taxes,they pale in comparison to a total loss and taxes “WILL”go up.
Have you seen the movie “Weekend at Bernie’s”?
See it,then you’ll have a good idea of what’s going on.
best of luck
September 15th, 2008 at 6:37 pm
I moved all of my accounts to Etrade. I have never ever dealt with as many screwed up people in my life. This **bank** should never ever be allowed to handle other people’s money. I have moved my IRA, personal brokerage account and savings from Etrade. As soon as I can find a bank that has a reasonably high rate of return and doesn’t look like it will go under, I’m gone.
September 21st, 2008 at 11:08 pm
Great site and information. I feel better about ING after reading your blog and the comments.
October 11th, 2008 at 12:50 pm
Emigrant has a sister on line venue called “DollarSavingsDirect”.Com. Has anyone any information on this venue or how or where can ratings for the banks (such as HSBC for instance) be found. Regardless if under the insured limit or not I would feel better if I was in a SOLID Bank. And what if you were in a bank that went under that was FDIC insured….how long would it take to get your money out of the failed bank???? Sorry, just not to educated on some of these these matters?
October 11th, 2008 at 1:01 pm
As far as I know, FNBO Direct is the highest rated of the online banks.
October 11th, 2008 at 2:44 pm
Nic…
Try Bankrate.com, but you can also just Google
“bank ratings” +DollarSavingsDirect.com
… And you should be able to pull up something. Have to wonder why you’d want to go to an online that is unknown though.
FDIC normally takes over a bank on a Friday and restores service by Monday morning. It gives them the weekend to get organized. In the case of my bank, WAMU, they took it over on Thursday night as rumors spread about the possible failure and they didn’t want a panic on Friday. I already knew that the chance of a takeover was good the week before by watching the stock price. I withdrew money from the ATM at 6AM the next day…. No big lines outside the bank…As they say in AussieLand “No worries, mate!”
jegan
October 11th, 2008 at 7:52 pm
Thanks Nickel and John. John, DollarSavingsDirect has something to do with Emigrant Direct….they do not have perks like Emigrants Master Card Cash Back, but pay a point higher (4%) interest…just wondering if they are ranked the same as Emigrant….will research Bankrate.com as suggested….and thanks, did not know how to do the “google + thing”
Nic
November 2nd, 2008 at 6:35 am
Yeah I’m a bit surprised at this too for ING. To be fair though, ING Direct is part of ING Bank in Delaware, which in turn is part of ING Group based in Holland. According to CNN Money they are the 7th largest company in the world: http://money.cnn.com/magazines...../7700.html Not banks. Companies. That said, their Wikipedia page does say something about them accepting a cash infusion from the Dutch government a couple of weeks ago…
January 22nd, 2009 at 12:38 am
FYI – ING Direct is now a 4 star rating on bankrate.
February 21st, 2009 at 11:47 pm
Does anyone know what the ratings were by bankrate.com of the banks that actually failed.
February 22nd, 2009 at 8:09 am
Michael: IndyMac was one star. Not sure about the others. But keep in mind that these are fairly broad categories, and they’re also only updated quarterly.
February 24th, 2009 at 7:54 pm
I’d like to hear about waiting time for deposits at various on-line banks.
It takes three days for a deposit to E*Trade Bank to be available.
What is the wait time, if any, at other banks?
March 9th, 2009 at 10:45 pm
Thank you for what your doing:
I’m scared, and I’m not alone..Much of my life
earnings are in, Huntington Bank, here in Macomb
County, city of Warren, Southeastern Michigan..
I can’t rely on a financial adviser or bank tellers
obviously because their connected…
Do you have any word on this banks stability.
Thank you
Jim Kirchoff
March 10th, 2009 at 10:46 am
What happened to FNBO >>>>>>>> was listed as the best ???? I have deposited a decent chunk od dough in FNBO per suggestions on this site…..
Response/s please????
Thabnks,
Nic