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Should You Put Your Money in a Bank That May Fail?

Written by Credit Karma October 9th, 2008 at 4:46 PM CDT 2 comments

As news of the Washington Mutual debacle started to trickle out, people with money in that bank began wondering if it was a smart idea to keep depositing. As a result, the overall amount of the bank’s daily deposits dropped sharply, which compounded the problem. While no one likes to think about bank failures, this is a reality in our current economic state. The main question remains – should you put your money in a bank that might fail?

There is no set answer to that question, but there are a few guidelines that you can use to help make this answer clearer. Here is some food for thought to help you get started.

1. Is the bank FDIC insured?

This may seem like a given, but there are actually financial institutions that are not insured, and some types of accounts may not have this kind of protection. For example, if you have your money in an investment account with a bank, there is a big chance that your funds are not FDIC insured. This puts them at risk should the bank fail. If you do have this insurance, $100,000 of your deposits are protected and the majority of consumers should not have a problem.

2. What is the financial institution’s track record?

Big banks are easy to track, they are in the news constantly and they have a reputation that they’ve worked very hard to build. Smaller banks fly under the radar and in some cases, especially with online “banks” they may not be a bank at all. Do a little research on your bank and see how much information you can uncover about their history, their policies and their track record. If you don’t like what you see, consider opening an account with a bank that you can trust.

3. How much could you stand to lose?

If you have more than $100,000 in a bank there is still some assurance that you won’t lose it all through FDIC. However, some of your funds may be at risk. Breaking up your accounts may be the best solution to ensure that all of your money will be protected in the event that a bank may fail.

Even the best banks can go under, as we’ve seen over the past few months. Too many bad loans can wipe out a financial institution in no time at all, especially if they all go delinquent in the same time period. Doing your homework about a bank can help you get a better idea of what you’re dealing with.

While there is no 100% “safe” place in the world to keep your money, having it in an insured bank is certainly better than burying it in the back yard. Make your choice wisely and do your research. By taking a logical and proactive approach to handling your money, you’ll be better off now and over the long term since you’ll be managing your money wisely.

Photo Credits: 1

Topic:
Banking, Credit Karma, Personal Finance

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USER COMMENTS

We need to be careful when discussing banking. The last thing we need is a run on banks at this stage, your deposits should be insured and if you’ve exceeded the insurance limits open more accounts. If our FDIC insurance fails the money in the bank will be the least of our worries.

by Green - October 9th, 2008 at 9:23 PM CDT

FDIC insurance covers up to $250,000 per account now.

by Eric - October 11th, 2008 at 12:25 PM CDT
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