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June 8, 2010 11:23 AM   Subscribe

Which bank is more likely to collapse first: WELLS FARGO or USAA FEDERAL SAVINGS BANK ?

I need to start a Roth IRA, meaning I will be hiding $5000 a year in a bank which I will not be able to touch for the next thirty years. If you ask me, this is a dangerous and scary time to be putting large sums of money into banks, money that you won't be able to get back. My cynical outlook tells me that as my money earns 1 or 2 percent in Certificate-of-Deposit interest, inflation and recession and depression and general economic madness will soar and skyrocket in such a way that the $5000 I put in now might buy a nice meal or two in 30 years. In any event, if I have to choose between WELLS FARGO and USAA FEDERAL SAVINGS BANK, which bank is more likely to even exist in 30 years?
posted by shipbreaker to Work & Money (14 answers total) 3 users marked this as a favorite
 
Just making sure, you're aware that you can sock money away in an IRA without relying on either of those banks, right? You can go with a mutual fund company or a brokerage. CNN has some explanations of the basic points of an IRA. That said, if you're just positing this as a totally hypothetical "pick one" choice, I'd go with USAA. In any case, the chances that your bank will dissolve taking your money with it are, at this point in US history, zero. If laws change, something might change, but I think this is fairly unlikely.
posted by jessamyn at 11:27 AM on June 8, 2010 [2 favorites]


Wells would go first if I had to guess. USAA is pretty Rock solid and is the bank for the US military. I've used them for 20 years and never had a complaint!!
posted by pearlybob at 11:28 AM on June 8, 2010 [1 favorite]


Anyone but USAA. I'm a customer because my father was, and I expect that my own kids will be as well.
posted by jquinby at 11:29 AM on June 8, 2010


When you deposit money into a Roth IRA, you are not putting money "into a bank." It's just a legal instrument used to define how investments are taxed. Depending on the brokerage or bank (like jessamyn says, there's no reason you have to use a bank), your investments may or may not be volatile and subject to economic collapse. Who holds the IRA is, at best, a question of who you want to call for customer service and what logo you want on your investment reports - not really a question of stability. What you invest your IRA in is your real question. I suggest starting with this book (no offense intended - it is really useful!) for information on how to pick an investment. Just keep in mind, however, that global economic collapse will cause more difficult issues than where your Roth IRA money is going.
posted by saeculorum at 11:46 AM on June 8, 2010 [1 favorite]


The premises of this question are wrong in a number of ways:
  • You aren't stuck with one bank. You can roll it over into another Roth IRA with another institution at some time in the future. You can even withdraw your contributions tax-free at any time (although you shouldn't).
  • A CD at either of these banks will be FDIC-insured. The chances of losing your money in an FDIC-insured account are very, very low. If you think that the federal government will not come through, it will only be the result of a financial cataclysm not seen since the Great Depression that means that both the banks will probably fail anyway.
  • One of the points of a Roth IRA is that you don't have to pay taxes on its earnings, if you withdraw them after the retirement age. You're really wasting this on CD interest. If you have any riskier (and potentially more profitable) investments, they should go in the Roth, and you should keep FDIC-insured savings accounts as non-retirement funds for more immediate, predictable access.

posted by grouse at 11:47 AM on June 8, 2010 [3 favorites]


Investment accounts would probably be SPIC protected up to 500k, regular bank accounts FDIC to 250k. It does not matter too much which bank you put your money into as you can always transfer your IRA to a different institution later. FWIW Wells is currently considered TBTF so it is unlikely to disappear.
posted by An algorithmic dog at 12:08 PM on June 8, 2010


Remember that the FDIC limit is now $250,000, not the prior $100,000. Even if your total holdings at one institution are in excess of the FDIC limit, you can ask the bank for "excess deposit placement insurance" to cover your entire balance with FDIC insurance up to $50 million - which I assume should be enough. Here's an introductory article from BankRate. Banks do this all the time for their trust holdings and municipal bond holders and it's available to regular private customers, too.
posted by webhund at 12:08 PM on June 8, 2010


A CD at either of these banks will be FDIC-insured. The chances of losing your money in an FDIC-insured account are very, very low.

And the circumstances that might lead to the federal government not fully covering FDIC-insured accounts -- which would be at the level of Ragnarok, a Chicxulub-size impactor, global thermonuclear war, or the Rapture -- are such that your bank accounts will be completely irrelevant after them anyway.
posted by ROU_Xenophobe at 12:16 PM on June 8, 2010 [5 favorites]


Aside from all the good advice about why don't need to be worried about these, neither of these banks is at all likely to fail.
posted by iknowizbirfmark at 12:51 PM on June 8, 2010


I came in here to say what Grouse said, and also what ROU_Xenophobe said.
posted by Medieval Maven at 1:26 PM on June 8, 2010


If FDIC fails, you're money would be worthless anyway. Money is backed by the "full faith and credit of the United States government", just like the FDIC is.
posted by spaltavian at 2:03 PM on June 8, 2010


Agreed that the premise of the question is a bit mis-guided, however, addressing it strictly:

One way to compare the "health" of banks is to look at their "Texas Ratio".

In a nutshell, the higher the Texas Ratio, the worse condition the bank is in. A Texas Ratio > 50% is considered unhealthy and 100% or more is considered to be a candidate for failure in the near future.

Here's one site that provides Texas Ratios for banks:

http://bankregdata.com/main.asp

They show the following Texas Ratios:

Wells Fargo - 44.59%,
USAA Federal Savings Bank - 13.06%
USAA Savings Bank - 4.91%

Based on that, I'd say Wells Fargo is at greater risk of failure than USAA.

Regarding FDIC insured accounts being safe until the Rapture - I disagree.

The FDIC insurance fund is currently operating at a deficit (spending more than it makes):

www.washingtonpost.com article

As losses have mounted on loans made for commercial real estate, bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31.

There were 140 bank failures in the United States last year, the highest annual tally since 1992, at the height of the savings and loan crisis. They cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008 and three succumbed in 2007.

The number of bank failures will probably peak this year and will be slightly higher than in 2009, FDIC Chairman Sheila C. Bair said recently. The agency expects the cost of resolving failed banks to grow to about $100 billion over the next four years


The backup funding source for the FDIC deposit insurance fund is the U.S. Treasury, and, ultimately, either debt sold by the treasury or taxes collected.

We're currently seeing a "bit" of turmoil in Europe that is due in no small part to governments realizing that they have to cut spending while simultaneously facing shrinking tax revenues and associated populations that are not happy about reduced entitlements or the spectre of raised taxes.

If a similar situation were to develop in the US (I'd argue it's a matter of "when", not "if") at some point there would be forced spending cuts. Would a broke FDIC insurance fund take priority over medicaid/food stamps/defense spending etc.? Something to ponder...
posted by de void at 2:03 PM on June 8, 2010


*your
posted by spaltavian at 2:04 PM on June 8, 2010


I turn to USAA for pretty much everything. Go for it.
posted by InsanePenguin at 2:07 PM on June 8, 2010


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