Is Your Bank Safe? Check Bank Ratings

by The Smarter Wallet on June 4, 2010

What’s the very first “consideration” that consumers have in mind when choosing a bank? Often, it’s the question: is it safe?

But what does this particular question mean? Do I think that my bank would embezzle my money? Give it away to terrorists? God forbid, go under? In reality though, it’s about taking a gander at the bank’s financial well being and determining whether or not the bank is stable enough to handle my deposit.

is your bank safe

Okay, so if I’d like to check up on the health of my bank or determine whether my online savings accounts are safe, where should I start? One place to start looking is a site like That is, if you are feeling good about taking someone else’s word for the stability of a company. In this day and age, we’ve found out the hard way that what we are being told, especially by representatives of the financial sector (even those who are paid to be unbiased or have third party opinions), may not be a very accurate description of the truth. So, then what?

Check Financial Statements

I could take a look at the bank’s financial statements. Everything I ever want to know about my bank’s financial condition is right there, in black and white, for the entire world to see, tucked away neatly in the annals of the SEC’s (the security exchange and commission) website. That’s right. Every publicly traded company must file annual and quarterly financial statements including profit and loss statements, income statements, and balance sheets with the SEC, which are then made public. But then again, have you actually ever seen one of these things? The accounting folks don’t get paid nearly enough for understanding what all that gibberish means. Those statements might as well be written in Latin for all the sense they make to me.

Look Into Ratings Services

Okay, so what else can you do? You could check with a trusted business rating site like Moody’s or FreeEdgar. These guys give you a rundown, mostly in layman’s terms, on what the bank is up to and how they have been handling their business…and all for free. This is actually a pretty good way to find out some intelligence on any company you might wish to do business with, so long as there is a recent review in the system. Here’s more on the subject of checking your financial company’s ratings in this article on how to manage risk.

Make Sure There Is FDIC Insurance

But then I started seeing the bigger picture here. As bad as things have been with the financial sector, with so many banks that have failed over the past five years, the number of people who actually experienced a loss when it came to deposits is extremely minimal. Why? Because in most cases, your deposit is federally insured by the FDIC. Before the financial meltdown, the FDIC insured your deposits against bank failure, robbery, etc. up to $100,000 at any one institution. Since the meltdown, that amount has been increased to $250,000. That means that the money in your account will be replaced if your bank fails. So are you FDIC insured?

Now you may wonder: doesn’t this make looking into the financial stability of a bank a moot point? In a way, yes. The major factors you should take into consideration when choosing a bank should have a lot more to do with how they plan to manage your patronage by offering free accounts, lower interest rates, etc. than with the financial stability of the bank. For instance, here’s how to compare online banks for your savings needs. Here are some online banks on solid footing:

Online Bank
APY Rate
Min. Balance
EverBank 1.51% $1,500
Ally Bank 1.25% (Updated 09/08/10) $0
WT Direct 1.21% $1
Sallie Mae 1.30% $0
FNBO Direct 1.10% $1
HSBC Advance 1.10% $1
ING Direct 1.10% $1
ETrade Financial 0.40% $1
Dollar Savings Direct 1.30% $1,000

In fact, gaining and keeping customers directly impacts the financial stability of the bank. These factors, coupled with the “Insured by the FDIC” brand, should be all the guarantee you need to make your first deposit.

Of course, I’m not suggesting that you blindly begin trusting any bank that displays the FDIC sign. You should know who you are doing business with. I’m merely suggesting that with the FDIC designation, the homework you perform may become a little less cumbersome.

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