A short descriptive title about bank problems.

March 4, 2008 12:56 PM

I recently visited bankrate.com and found my bank has a rating of one star out of five. (There is no zero rating). Should I change banks?

The bank is FDIC insured and I am well within limits of their max insurance. I started banking here eight years ago when they had a special promotion that said there would be no monthly service charges and no ATM charges for life - something I almost certainly wouldn't find if I switched. I have about eight thousand in my bank account now because I will be using it to pay taxes soon, otherwise, I usually would have less than two thousand.

So - should I worry about bank insolvency (like would my money disappear for several months until I get a check from FDIC?) or is a bank going insolvent with FDIC insurance not a big deal? Or is a one star rating not that much to freak out about?

posted by dances_with_sneetches to work & money (5 comments total)

If a bank goes belly up, the FDIC's preferred response is to convince some other, larger bank to acquire it and to honor all its debts, which means that even deposits in excess of the FDIC limit will be preserved 100%.

But if that's not possible, the FDIC will cover all deposits up to the insurance limit. In either case, they try to manage things so that there's little or no disruption for customers.

Having said that, do you have any particular reason to believe that this web site knows any more about your bank than you do? Why do you think their opinion is worth any more than you paid to get it? I think you're worrying too much.
posted by Class Goat at 1:36 PM on March 4, 2008

I assume you mean the five-star Safe & Sound ratings, which are the reverse order and on a different scale from the CAEL ratings.

I think I would label this a cause for concern rather than abrupt action. You may want to consider diversifying who holds your money. As long as you're under FDIC limits, though, you will probably only have to worry about any temporary disruption -- say, the bank starts to fail and lays off half its employees. But ultimately the CAEL methodology is one that is more meaningful to investors and regulators. (Here the FDIC disclaims any endorsement of the Bank Rate numbers.) Even Bank Rate themselves suggest that it has limited utility, e.g. for whether you can find a CD with a good interest rate, and elsewhere they seem to deliberately avoid telling you how to use the ratings. (Perhaps if they did, they would be giving investment advice?)
posted by dhartung at 2:48 PM on March 4, 2008

The CAEL rating is 5 (also the lowest). One last question. The FDIC insures deposits, right? Not just savings?
posted by dances_with_sneetches at 3:39 PM on March 4, 2008

If you're that worried, pick another bank. If you leave a couple bucks ($5?) behind in the original account, it'll remain open, preserving the option to use that deal. But it's not that hard to find one without ATM/service charges. Start by calling local credit unions.
posted by nakedcodemonkey at 8:28 PM on March 4, 2008

What Does the FDIC Insure?

The FDIC insures all deposits at insured banks, including checking, NOW and savings accounts, money market deposit accounts, and certificates of deposit (CDs), up to the insurance limit.

The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank.

FDIC: Are My Deposits Insured? should answer your remaining questions, dances.
posted by dhartung at 10:38 PM on March 4, 2008