How Safe Is Your Bank?

As the list of failed banks continues to grow, you might be wondering how safe your funds are at your local bank. With over seventy failures this year, how do you know if your bank will be next?

The best thing you can do is make sure your bank is covered by FDIC insurance (it probably is). Never put your savings into a bank that isn’t covered by FDIC insurance. FDIC insurance protects your deposits up to $250,000 per depositor. No depositor has ever lost a penny of FDIC insured deposits. With that insurance protection, the issue of bank safety is practically irrelevant. To confirm a bank is FDIC insured, you can search for your bank using the FDIC Bank Find tool.

If, however, you are still concerned, there are two respected independent bank rating services you can use to determine the “safeness” of a bank – Bauer Financial and Bankrate.

Baeur Financial offers up a star rating and the option of paying for more detailed reports. A report can cost as little as $10 but you get their star ratings for free. The ratings go from zero stars to five stars, with three stars as “adequate.” They recommend any bank with a four or five star rating. One downside of the star rating is that they don’t date the scoring in the summary.

If you aren’t interested in paying for a report, another option is Bankrate. Bankrate puts out Safe & Sound Star Ratings on all banks, thrifts, and credit unions. The ratings go from Not Rated (NR) all the way to 5 stars (Superior), with the average set at 3 stars (Performing).

Let’s take a look at Ally Bank’s memorandum in which they were given a 4 star rating as of December 31st, 2009. The important things to review are the various highlights such as asset quality, capital, and liquidity. Under asset quality, which Bankrate considers a “major determinant of the viability of any banking institution,” the Nonperforming Asset Ratio of 3.91% is “relatively low” for Ally Bank’s peer group.

If you see something in a report that troubles you, remember that you are covered by FDIC insurance. You may not want to open an account a bank that seems troubled, but shifting your funds around isn’t going to make the situation better. In most cases of a bank failure, the bank is seized on a Friday and open for business the following Monday (watch this video on the FDIC seizing a bank).

Jim writes about personal finance at

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