Billionaire investor Wilbur Ross expects thousands of banks to fail in the coming months, he told CNBC this week. How can you tell if your bank will be one of them?
For one, watch the news. Among major U.S. commercial banks, rumors are swirling that Washington Mutual will go down next. That said, WaMu account holders don’t need to go running to get their money. In all likelihood, another bank will buy WaMu and it will be business as usual, just under a new name. Worst case scenario, the government takes over and the FDIC steps in and repays account holders up to $100,000 each.
If you keep money at a bank that isn’t in the headlines, you can get a sense of whether your money will be safe by looking up bank ratings, such as Bank Rate’s Safe & Sound ratings or Fitch Ratings. What do the ratings measure? In Bankrate’s own words:
Bankrate.com’s Safe & Sound service is a proprietary system designed to provide information on the relative financial strength and stability of U.S. commercial banks, savings institutions and credit unions. The system employs a series of twenty-two tests to measure the capital adequacy, asset quality, profitability, and liquidity (CAEL) of each rated financial institution.
Put simply, Bankrate assigns bank a score from one (highest) to five (lowest) based upon its own financial health. Banks with ratings of one, two, or three are in pretty good shape. A rating of four or five are cause for concerns.
Here are a few examples of current banks ratings:
- WaMu: 5 (Lowest Rated)
- FNBO: 2 (Sound)
- ING: 3 (Performing)
- Bank of America: 3 (Performing)
- E*Trade: 4 (Below Peer Group)
After searching a couple dozen big banks, I didn’t find a single bank with a top rating. That’s probably a sign of the times. While a good rating isn’t necessarily a sign that your bank is 100% safe, it’s a good indicator that it’s better off than most.
If you’re looking for a safe place to stash your savings, I highly recommend the sound-rated FNBO. Not only is the bank financially safe, the FNBO Direct savings account offers one of the nation’s highest interest rates with no minimum deposit. Read my review of FNBO Direct.