Aug
18
How Much Money Should You Keep in One Bank?
Filed Under Bank, Investing, Money Management | Leave a Comment
Now that you’re confident your accounts under $100,000 are safe and you don’t need to pull your money out of the bank, you might be wondering how much money you should keep in any bank.
Keep Less than the Maximum Insured Amount
Personally, I wouldn’t keep anywhere near $100,000 in cash anywhere, unless it was part of the down payment for a house. Sums that large should be invested in order to earn a larger return than the paltry 1-3% you can earn on a savings account.
However, if you do need to keep a large amount in cash, don’t put more than $90,000 in a non-retirement account at any financial institution. If you earn interest, you could quickly go over $100,000 if you have more than that in an account. By keeping no more than $90,000 in an account, you have some room for growth.
Disperse Large Savings Between Several Banks
One of the victims of the IndyMac failure was a man who’d put his life savings of more than $200,000 in five CDs. He’d been told he could protect it by adding the names of other family members to the account. He lost nearly $30,000 in the collapse.
However, for short-terms needs, I’d put $80,000 in three different banks - note, that means different financial institutions, not different branches of one institution.
Invest Large Amounts You Don’t Need in the Short Term
Equity and most bond investments are not insured, but they offer a better return than you’d receive from CDs or cash savings. Unless you need a large amount of cash in the next three years for a home purchase or college, invest it. If you’re not sure how aggressive you should be in your investments, seek the advice of a certified financial planner who charges by the hour (rather than through commissions.)
Check Yearly to Ensure You’re Not Over the Limit
Mark a date in your calendar every year to review all of your bank balances and shuffle the money around if any one account is at or near the insured limit. That way, if something should happen, you can relax while everyone else rushes to the bank in a panic.
These suggestions are simple on the face, but they can go a long way towards ensuring that your money is fully insured or working hard for you if it’s not insured.
Aug
15
When IndyMac Bank closed, the news featured photos and video of crowds of people waiting outside the bank to withdraw their money. Most of them had less than $100,000 in the bank, and it reopened as a Federal bank the following Monday, so there was really no reason for the rush other than fear. So when should you pull your money out of the bank and when should you avoid the panic and the rush?
Close an Account You Tend to Forget
If you have several small accounts that go long periods without activity, it’s best to close them and move the money to a few larger accounts. States have become more aggressive at shutting down closed accounts and then using the money until you claim it. Why give them a loan?
Close Accounts at Banks in Other States
If you’ve moved permanently out of state and your bank doesn’t have branches where you live, close the account.
Withdraw Funds in Excess of $100,000
One of the main problems with the IndyMac closure was the confusion about FDIC insurance. Some people mistakenly believed they could increase the insurance limit by adding 3rd and 4th people to the accounts but not giving them the full rights to the account. Others thought that business accounts were protected for larger amounts. Still others thought they could open several accounts of the same type and have each insured up to $100,000. According to the FDIC website:
- Single Accounts are insured up to $100,000 per depositer per bank. So, you can have a savings account and a checking account worth a total of $100,000 combined in order to be fully insured.
- Joint Accounts are also insured up to $100,000 per depositor per bank. So, if you and your spouse have $150,000 in a joint checking account, and $70,000 in a joint saving account, then you’re only insured up to $200,000. Note, that only authorized users are insured. Account holders in name only aren’t covered.
- Retirement Accounts (IRAs, Keoughs, and two others) are covered up to $250,000.
- Revocable Living Trusts are insured up to $100,000 per owner and beneficiary (so a couple with two children would have their trust ensured up to $400,000 if both couples owned the trust and both children were the beneficiaries.)
If you have more than $100,000 in any single bank, withdraw the overage and deposit it in a different financial institution (not just at a different branch of the same bank.) Even if the account isn’t insurable to begin with, I’d worry about having that much cash in any one place and would spread it around to be safe.
If you have less than $100,000, your money is safe and your bank will continue to operate even if the FDIC seizes it. The FDIC typically engineers a sale to another bank quickly, and most people don’t even notice the change.
Withdraw Funds If You Keep Large Amounts in One Bank and It’s Looking Iffy
If you start to hear rumblings about your bank, and you operate a business or keep a large amount of money in the bank, you might want to withdraw it before the bank is seized. You can keep tabs on the safety of your bank with Bankrate’s Safe & Sound ratings. If it has a CAEL rating of 4 or 5, or a Bankrate star rating of 1 or 2, you might want to switch to a different bank.
You should read their full report before rushing to the bank, though. You may decide the low rating is unrelated to their ability to keep your money safe.
The quote I heard most often during the IndyMac collapse was: “I know it’s safe, but I don’t want to take a chance.” They were reacting with fear stoked by dire news warnings rather than knowledge. Two other banks closed that week and the transition was smooth. So, decide know when you should withdraw your money and then stick to it if something happens. If you want more reassurance, use this insurance tool at the FDIC to confirm that your money is safe after a collapse.
Jun
12
When Is It Time to Get a New Bank?
Filed Under Bank, Personal Finance | 3 Comments
I bank with Bank of America, and have another account with Washington Mutual. There have been occasions where both banks have nearly driven me to quit them and find some new way to manage my money. In the end, they’ve both offered features that convinced me to stay. Nevertheless, I keep my list of deciding factors around in case one of them finally pushes me over the edge.
Free Online Banking
Whichever bank I choose must have completely free online banking. That means no fees for online bill paying. Why would I pay my bank a monthly fee in order to make their job easier? If the service isn’t free, I’m not using it.
Paperless Statements and Bills
Bank of America allows for completely paperless account statements and credit card bills, while Washington Mutual insists on mailing me paper statements. Since I don’t use my WaMu accounts often, I live with it, but if I was switching all my banking over to one institution, then the paperless option would be a major deciding factor.
Free Savings Account
If a bank charges me a fee for a savings account, then it’s not getting my savings. It’s as simple as that. There are too many free banks to make it worth paying someone to hold my money. With interest rates as low as they are, some fees actually cost more than anything you’d make off the account anyway.
Convenient ATMs
Numerous convenient ATMs are the primary reason I stick with WaMu and BofA. They’ve pretty much cornered the market in LA. Although there are cheaper banks, I like always being within a quarter mile of an ATM. However, BofA recently instituted a change to their ATMs that would drive me away if I frequently deposited checks or cash. The new ATMs duplicate the inconvenience of visiting a human teller without the perk of actually speaking to a human. In case you haven’t heard, the deposit envelopes are gone. Instead you stick your wad of cash into the machine for counting, and feed checks in one at a time. Not only is that hugely inconvenient, but it isn’t very safe.
Free Checking Account
I use the WaMu account for my infrequent business checking because it’s 100% free (except for the checks, which I almost never write.) My BofA account is most definitely not free, but they waive the monthly fee with direct deposit. Since most employers now provide direct deposit, the fee isn’t an issue for me. If neither my husband nor I had direct deposit, then I would be looking for a free checking account.
Helpful Customer Service
Stop laughing! It is possible to find good customer service from a bank. I’ve actually had good service from both WaMu and BofA. My best story happened about a year ago when my auto insurance company failed to process our electronic payment on time. I called the insurance company to ask why our payment had been received, but not applied to my policy. They told me they didn’t know and to send another payment. When, I refused to pay them again, they suggested that I stop payment on the original payment - a payment they’d already received!
Finally, I got the woman’s name and then called the bank. While I waited on the phone, the bank rep called the insurance rep, faxed them proof of payment and proof that they had confirmed receipt, had them reinstate the insurance, and had the late fee removed. We also discovered the problem: the insurance co. can’t accept electronic payments, so the bank has to mail a check. We pay that bill by personal check now, but the experience has left me with a warm spot for my bank and a cold spot for my insurance company.
I know many people who have had bad experiences with both of my banks, but so far I’m not one of them. If your bank routinely angers you or doesn’t provide the services that matter most to you, it’s time to get a new bank. With all the options out there, there’s no reason to stick with a bad bank.
