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How to Know if a Bank is Safe

by Ryan Guina

A reader recently contacted me concerning the safety of a specific online bank. The bank in question had higher than normal interest rates at a time when most banks are offering fairly low interest rates. (Here are some current interest rates to give you an idea of what to expect). Specifically, the reader wanted to know why the bank was offering higher interest rates than most other banks, and if his deposits were guaranteed by the Federal Deposit Insurance Corporation (FDIC).

Bank Safety - Is Your Money Safe?

Are your deposits safe?

Bank safety is incredibly important, and you want to ensure your money is safe before you make your first deposit. I was able to help him find the answers. In this instance, the high interest rate was a teaser rate good for the first 6 months after they opened their account. I was also able to get the FDIC number, and show him where to go to find this in the future. I’ll share these tips with everyone else so they can do this research on their own going forward.

It’s also important to know you can perform similar research for Credit Unions, even though they don’t have FDIC numbers. Credit unions are covered through the National Credit Union Administration (NCUA).

How to Research a Bank with the FDIC

Let’s look at an example using USAA Federal Savings Bank, which is my primary bank (this was not the bank the reader asked about). Here is some information you should be able to find for any bank covered by the FDIC:

You should also be able to find the bank’s FDIC information on their website. But the above method works for banks you aren’t familiar with.

How to Research a Credit Union with the NCUA

As we mentioned above, the FDIC doesn’t have anything to do with funds held in credit unions. These funds are insured by the The National Credit Union Administration (NCUA). NCUA Insurance, known as the National Credit Union Share Insurance Fund (NCUSIF),covers deposits at almost 94 million state and federal credit unions. You should always verify an institution is covered by NCUA insurance before opening an account with the credit union. Here is how you do it:

  • Visit the Research a Credit Union Tool
  • Type in the required information, or as much as you have
  • View the results
  • The NCUA site also has a map feature which will help you locate credit unions by location. This is useful if you can’t quite remember the exact name, you remember where the credit union was located, or you are new to an area and are looking for a new credit union.

As with the FDIC tool, the only information you will get is whether or not the NCUA certificate is active. To learn more information about the health of the credit union, you need to dig a little deeper.

Use BankRate’s Safe and Sound Tool

Another way to gauge a bank’s credibility is with the Safe & Sound® rating system. This is not an official government resource like the FDIC, but it is very useful for researching a bank’s stability. The BankRate Safe and Sound tool can be used for both banks and credit unions.

USAA Federal Savings Bank has a 5-star rating out of 5-stars, which is considered superior. Here is the USAA page on BankRate’s tool.

I’m happy to see the high rankings for USAA. I’ve been a member there for 12 years now, and I have no problem recommending it to others.

Search for Customer Reviews

Another good way to research banks is through customer reviews. Blog reviews are a good place to start, because many financial bloggers take the time to perform in-depth research for products and services when they are writing reviews. I try to do this, often going so far as to open an account to see what makes Bank A better than Bank B. (This is one reason why I need to consolidate my accounts about once a year!).

But you shouldn’t limit your research to blog reviews. It is also helpful to read industry sites and sites where customers share complaints or reviews. The Better Business Bureau is one site, but there are other sites as well.

Go with Your Gut

When it’s all said and done, trust your instincts. This is your hard-earned money and you shouldn’t trust it with a company if you have any reservations.

Photo credit: NNECAPA Photo Library


Published or updated October 17, 2013.
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{ 2 comments… read them below or add one }

1 Kurt @ Money Counselor

Say a bank is FDIC insured but has a relatively poor rating by BankRate’s tool. Would that mean I’m more likely to lose money compared to an FDIC-insured bank that’s highly rated by BankRate? Thanks.

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2 Ryan Guina

Kurt, if the bank is FDIC insured and you keep your deposits under the limits, then you won’t lose any money even if the bank fails. Also, a lower rating for a bank doesn’t necessarily mean it will fail. It may just be an indicator that the bank may not meet certain metrics and standards when it comes to their financials and other measurements. With everything, just do your research and go with your gut.

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