Comments (scroll down to add your own):

1. That is some very interesting news. Not sure how Emigrant Direct, HSBC Direct, and ING Direct are all rated so low but like you said, Bankrate isn’t the end-all when it comes to the health of institutions. I have always believed that it is important to do your own research into such matters and use sites like Bankrate as a guide. Of course, the tiny regionals are going to be more suspect than the century-old institutions but anything can happen in this day and age. I’m sure all of this won’t help change the misconceptions regarding online banking. I attempted to that on myself, but only time will tell what happens from here.

   Comment by Eric J. Nisall — Aug 7th 2008 @ 10:02 am

2. one problem may be bank “investments” include derivatives and leverage. I suspect its difficult to gage the volatility of these, even by professionals, and alot of banks are hoping and praying for no black swan events.

   also, I don’t know if the $100k FDIC is getting adjusted for inflation. $100k is way less purchasing power than even 10 years ago, especially in the context of the housing bubble. It could get tedious for people to have 1/2 dozen bank accounts, along with a myriad of brokers, and other money oriented accounts.

   Comment by Paul — Aug 7th 2008 @ 11:39 am

3. I’m not positive, but I believe the following may explain why ING Direct has a relatively low Bankrate score:

   “COUNTRYWIDE had 94,000 foreclosures last year. By comparison, ING has had just 15 out of 100,000 in its eight-year history as a mortgage lender. So what’s the online bank’s secret? Unlike other lenders, who have sliced, diced, and sold off their loans to Wall Street, ING has kept all $26 billion of its loans on its books … [Says Arkadi Kuhlmann, CEO of ING Direct, many banks resell] their mortgages, and with no skin in the game, underwriting standards suffer.” (Jon Birger, Fortune, 3/17/2008, “ING dodges subprime: only 15 foreclosures for the bank since 2000.”)

   If a bank “improves” its bottom line on paper by lumping its loans, good and bad, into one jumbo security and then selling that security to some Wall Street firm, then it’ll probably look better — and its numbers will crunch better — to outside entities like Bankrate, whose formulas many not take into account the funny numbers. I’d have to know more about how Bankrate crunches its numbers to be sure, but I suspect this is the case.

   Frankly, I’m quite happy to keep my hard-earned money in a bank in which the CEO is actually keeping an eye on underwriting standards, regardless of its Bankrate star ratings. Bankrate’s ratings can be useful, but take them with a grain of salt — and never, never exceed FDIC insurance limits on any bank accounts anywhere.

   Comment by PDamian — Aug 7th 2008 @ 11:58 am

4. As long as the account has less than $100k. Who cares?

   Comment by Aaron — Aug 7th 2008 @ 4:35 pm

5. I always wondered about those ratings. This was an interesting article.

   Paul, if a depositor has more than $100,000 there are many ways to be insured at one bank. Most people have at least a couple of family members they can list as beneficiaries. $100,000 is just for a single account owner. Go to the FDIC website for information on revocable trust accounts. All you need to do is ask the bank rep to put Payable on Death on a CD or other
   account. Each trust account is insured up to an additional $100,000 per qualified beneficiary. (i.e., spouse, child, sister, brother)

   You can also go to a CDARS partner. http://www.cdars.com There are about 2,000 banks that belong to CDARS and unless you have more than $50 million, you just get one statement, one interest rate and each account is FDIC insured up to $100,000.

   I don’t understand why other states don’t carry SIF or DIF like the banks in MA. They are insurance funds that cover all amounts above the FDIC limit. See http://www.coopcentralbank.com and http://www.difxs.com

   Comment by Nancy — Aug 9th 2008 @ 2:23 am

6. I agree with Paul. We simply do not know, and bankrate cannot know, the extent of a bank’s leverage and derivatives in the “undocumented” investment vehicles. that’s the reason we are in the credit mess, because there was and is no “real” value on some of these investment vehicles that were used as leveraged investments.

   Comment by Tim — Aug 15th 2008 @ 12:22 am

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