How safe is your bank?
3 things to consider when selecting and working with a bank
When choosing which bank to work with, what should you look at? There are so many different options, from the “big box” banks (Bank of America, Chase, and Fidelity), to hip startups (Acorn, Betterment, and Ellevest), to local small banks (credit unions).
If you’ve been alive for more than a decade, you’ve seen several large banks fail in this country. If you’re concerned — it makes sense.
It doesn’t matter what size or type of bank you choose to work with — no bank is immune from the possibility of failure.
But here is what you need to know
Banks have never been safer — seriously!
State bank regulators have been (and are) working with the Federal Reserve to make sure your funds are insured to the legal limit by the FDIC. Safeguards are in place to protect and ensure your funds are on deposit — the FDIC insures deposits up to a limit of $250,000 per depositor.
The question now is — when it comes to considering which bank to do business with, how do you know it’s safe?
No method is foolproof, and nothing is ever 100% guaranteed. However, there are indicators that can help you sniff out any potential trouble before you start banking with someone.
The first indicator
The amount of risk (aka loans) the bank has in relationship to its available capital. Most banks have a minimum of 6% of reserves available for loan defaults. The more capital reserves a bank has may be an indicator of more financial strength. Generally, the higher the reserves, the better the bank's economic strength. Banks often refer to this category as the total risk-based capital ratio.The second indicator
The loan-to-deposit ratio. The lower the ratio — the better indicator of the bank's strength. Banks can overloan and reduce the ratio — which would indicate possible problems. A reasonable ratio is 95% of deposits to loans.The third indicator
The percentage of loans in default for 30 days or more. These loans would be considered non-performing and affect the bank's reserves (as explained above in the risk capital ratio). Any percentage below 5% is manageable and will generally not affect a bank's performance.Even with the support of government agencies and FDIC insurance to protect the consumer, knowing as much about your bank as possible is essential. Transparency equals trust — all banks will provide the information you need to make the best decision.
Something to consider
A simple solution to soothe your anxiety and minimize risk is to spread your deposits over several banks to take advantage of the FDIC insurance limits per bank. To be clear — these tips are only indicators and don’t mean anything other than an overall indicator of issues.
Hi — I’m Lori.
I became a retirement specialist to help change the retirement narrative – freeing professionals to live a life of grandeur, thrills, and connection. A life that contrasts the life you live when you’re caught up at work. A life you’ve been dreaming about since day one. Work with me to create guaranteed income that keeps rolling in until the day you kick it.
This article is intended to serve as a basis for further discussion with other professional advisors in legal, financial, and tax. I have made every effort to provide accurate numbers and explanations. The information in this report should only be used as basic information regarding the subject of probate. Always consult with your tax preparer and legal advisor regarding questions for your specific situation. This report does not purport to provide legal advice at any level and is only meant as general information.
