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Tips for choosing a bank

| Money Rates Columnist.
min read

MoneyRates.com makes it easy to find the best rates on CDs and savings accounts. But before you open up a new account at a bank, it's smart to do additional research in the bank that offers that great rate. Fortunately, MoneyRates.com makes that easy as well.

This page contains information and resources that can help answer all your questions about a bank you find online. This includes questions about FDIC insurance and the health of the bank you're considering.

Searching for a healthy bank

The number of bank failures in the United States varies from year to year, and the number often depends on the state of the economy. There were 157 bank failures in 2010 and 140 in 2009, but the FDIC closed only 28 banks in 2007 and 2008 combined.

If your bank fails, the good news is that your deposit is insured up to $250,000 per depositor. The bad news is that having money at a bank that is closed by the FDIC can lead to some difficulties. The new bank that assumes the deposits of the failed bank can lower the interest rates on your accounts or change their terms.

If the FDIC can't find a bank to take over for the failed bank, you could be stuck with the task of finding a new bank yourself. Customers of failed banks have also reported that they had trouble converting their online banking and bill payment services to the new bank the FDIC appointed to take over their deposit accounts. So it is always wise to try to gauge the health of a bank before you open an account with them.

Bank resources for consumers

U.S. banks are regulated by the Federal Deposit Insurance Company, known commonly as the FDIC. This independent agency was created by Congress to maintain stability and public confidence in the nation's financial system by insuring deposits, supervising financial institutions for safety and managing receiverships. To date, no depositor has lost a penny from an FDIC-insured deposit because of a bank failure.

The FDIC offers excellent consumer resources, alerts and tips for any person considering opening a bank account in the U.S. In addition, the FDIC website will allow you to authenticate any bank you see online, as well as view the latest public financial information available on that particular bank. Consumers can also use websites like MoneyRates.com to receive expert advice and useful tips on banking products. Below are some of the best online resources for banking customers:

FDIC institution directory

FDIC's guides on insurance

FDIC's depositor bill of rights

Federal Reserve consumer help

Comprehensive guide to savings accounts, money market accounts and certificates of deposit

News from U.S. Senate Committee on banking

7 signs your bank may be failing

Historical interest rate data from the Federal Reserve

Banking regulation news from by the Federal Reserve

Historical prime rate changes by MoneyRates.com

Help with bank ratings

The FDIC provides insurance coverage up to $250,000 per bank per depositor. The problem for many depositors in the event of a bank failure is the inconvenience and confusion. Here's what you can do to prevent these troubles as you shop for a new bank:

  • Check any enforcement actions by the FDIC against the bank. Historically, the chance of a bank failing is higher if the bank has had a recent enforcement action.
  • Check the total assets of the bank. Smaller banks with less than $500 million in assets are more likely to be purchased or to be closed by the FDIC than larger banks.
  • Check the stock price of the bank for the last six months. What is the trend? In many cases, the market has factored in news about upcoming financial problems for a bank that will be reflected in a falling stock price. A simple rule is that if a bank stock's price trend is trending downward significantly faster than the KBW Bank Index, then it is possible that there is a problem.
  • Check the percent increase in total assets for recent quarters. Does it appear that the bank is growing too fast? Or are assets decreasing at an alarming rate? If either is the case, the chance of a bank failing is more likely. Another negative consequence of a bank growing too fast or too slow is that customer service from the bank can be poor while the bank tries to adapt to an unstable rate of growth. Look for a bank with the "Goldilocks" approach to asset growth: not too fast and not too slow. Not only is a bank with stable asset growth in better overall financial health, customers of these banks are usually treated better.
  • Finally, for many people the task of reviewing financial data is either too confusing, time consuming or just plain boring. But there are companies that will sell a bank rating report that summarizes and clarifies many of the financial questions about a bank's health. A specialized report will assess the risk of holding funds at a particular bank. In many cases, the peace of mind afforded by buying a report on a bank is well worth the money spent.
Mike 7 February 2012 at 7:15 pm

I have exactly the opposite experience with US Bank. My paychecks are *fully* available the same night they're deposited (zero wait time). They did require a 'probation period' before you get to where I am (I forget how many months it was), but so long as you account for that in your monthly budget, it shouldn't be a deal-breaker. Every bank I've ever used works the same way, but the probation periods have all been different.

Riki Peterson 28 September 2011 at 2:53 pm

US Bank is by far the most unreasonable bank I have ever worked with!!!! I am a 50 yrs old grandmother, who has lived in 3 states, and I've had several checking accounts with several different banks since I was 16. They hold your deposited check for 5 working days...but in my case because of the holiday and then the following weekend...my check was not available for over 10 days!!!!! What made it worse is that they returned my checks AND CHARGED ME OVER-DRAFT FEES!!!!! Even though they had my $$$$ THEY ARE CROOKS!!!