How safe is your bank?

3 things to consider when selecting and working with a bank

When it comes to choosing which bank to work with what should you be looking 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, with the FDIC insuring 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.

1. 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 financial strength of the bank. Banks often refer to this category as the total risk-based capital ratio
   

2. The second indicator
   The loan to deposit ratio. The lower the ratio — the better indicator of the bank's strength. Banks can over loan and reduce ratio — which would indicate possible problems. A reasonable ratio is 95% of deposits to loans.
   

3. The third indicator
   The percentage of loans in default for 30 days or more. These loans would be considered non-performing loans and would have an effect on the reserves of the bank (as explained above in the risk capital ratio). Any percentage below 5% is a manageable number and will generally not affect a bank's performance.

Even with the support of government agencies and FDIC insurance to protect the consumer, it is important to know as much about your bank as possible. Transparency equals trust — all banks will provide the information you need to make the best, right decision for you.

Something to consider

A simple solution to soothe your anxiety and to minimize risk is to spread your deposits over several banks to take advantage of the FDIC insurance limits per bank. To be perfectly 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 both 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.