Risk-Free Banking

Written by Nickel - 5 Comments

Three Four banks have failed since July, eight nine so far this year, and there are upwards of 90 more on the FDIC’s “troubled” bank list. It’s a nerve-wracking time, to be sure. So what can you do to reduce you risk when it comes to banking? Here’s a list of five tips from a recent article in Money Magazine:

  • Check out your bank at Bankrate. While I’ve argued in the past that Bankrate’s Safe & Sound ratings aren’t 100% reliable, that mostly has to do with being skeptical of apparently “healthy” ratings. If Bankrate says that a bank is in trouble, then it probably is.
  • Use the FDIC’s insurance estimator. I’ve talked about FDIC insurance limits in the past. This online calculator is an easy way to make sure you’re safely under the limits. If you use a credit union instead of a bank, keep in mind that NCUA insurance limits are virtually identical to FDIC limits, but they have a calculator of their own.
  • Change your accounts’ ownership status. If you’re over FDIC (or NCUA) insurance limits, you can re-title your accounts to increase your coverage. For example, a husband and wife could each have individual accounts plus a joint account. This would afford up to $400k in protection. If all else fails, open accounts at additional banks.
  • Check out the Certificate of Deposit Account Registry Services (CDARS). This program lets you keep up to $50 million in one “home bank” while maintaining full insurance coverage. The downside is that the associated interest rates are a bit lower than you might otherwise get.
  • Consider moving your HELOC. If you have a home equity line of credit at a troubled bank, you might want to think about looking for greener pastures. If your bank fails and a buyer can’t be found, you’re HELOC could wind up frozen or even closed.

It really just comes down to common sense. If you use your head, stick with a relatively safe bank, and avoid unnecessary risks, you shouldn’t have too much to worry about.

Edit to add: Moments after publishing this, I discovered that another bank failed today. Hat tip to News and Verse for pointing this out.

Source: Money Magazine

Published on August 25th, 2008 - 5 Comments
Filed under: Banking
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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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Comments (scroll down to add your own):

  1. WHAT’S IN YOUR WALLET?

    NEWSWIRE–A Kansas bank has become the ninth closed by federal regulators this year, amid bad real estate loans and falling housing prices.

    Not dollars or drachma or krona or kips,
    No sheqel or shilling or rand,
    Not ruble or rupee or money in clips:
    No sawbuck, a fifty, a grand.
    Not penning or fenning or guilder or gold,
    No euro or florin or francs,

    What we’re counting today is not bills that will fold,
    But banks.

    Light verse, ripped from the headlines

    Comment by Kevin Pierce — Aug 25th 2008 @ 1:42 pm

  2. Those are all really good tips. Another blogger (I think it was either Felix Salmon or Paul Kedrosky) posted a couple weeks ago that there was a way for people with more than $100,000 in a bank account to diversify and protect themselves via the FDIC without having to open accounts at tons of banks. I forget what the exact method was though.

    Comment by Big Winner — Aug 25th 2008 @ 9:50 pm

  3. I think it’s funny that our nation’s personal savings rate is negative yet when banks start failing you see an inordinate number of people worrying about FDIC insurance!

    Comment by jim of Blueprint for Financial Prosperity — Aug 25th 2008 @ 9:57 pm

  4. I read today that my mortgage company, Washington Mutual, is on a ‘Dead-man walking’ list of companies that seem doomed to fail. I’m pretty clear what happens to moneyed acocunts, but does anyone know how this might affect me and my mortgage account if the bank goes under?

    Comment by Eric — Aug 26th 2008 @ 2:18 pm

  5. Yes, I know..
    They tear up the loan documents, and you owe nothing :-)

    Comment by john — Sep 15th 2008 @ 9:12 pm

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