How to Tell If Your Bank Is Safe or in Trouble
Spot the Red Flags
Is your bank safe? Banks are supposed to be a safe place for cash. However, you may wonder if your money is really safe.
If you grew up outside of the United States or have elderly relatives who remember how much people distrusted financial institutions after the Great Depression, you might be especially cautious about banks. Even in the 21st century, it's not uncommon for people to refuse to deposit their cash in banks. Instead, some still prefer to keep their money in hiding spots around the home or in safes.
Life doesn't have to be this way. After all, there are signs to watch out for that a bank is in trouble. Let’s review how you can ensure that your money is in a safe place.
First, you should be sure that your 'safe money' is in a safe place. One of the most powerful safeguards is insurance backed by the United States government. For banks, you’ll want FDIC insurance. Credit unions use NCUSIF insurance.
Make sure that you understand the limitations of these programs. You can still lose money if you have too much in one institution. So, if you'd like to take extra precautions, spread your money around to ensure that if one bank goes down, all of your money won't be lost. Improve your understanding of how the aforementioned safety measures work by consulting the following:
If your money is fully and properly insured, you have very little to worry about. If your bank goes belly-up, you probably won’t notice. Okay, so you might notice if your financial institution makes the news, but FDIC and NCUSIF programs generally ensure that you can use your same accounts, cards and websites without interruption.
If you want to avoid bank failures, you can try to avoid weak banks. To identify weak banks, check rating services to see how your bank or credit union is rated. Some of the most useful free services include:
Read the News
If you have money at risk, you can also follow the news to see which banks might be close to failure. Of course, nobody knows what will happen ahead of time and you might be led astray. However, there was a lot of talk about Washington Mutual and Wachovia before they failed in 2008.
Note that if you are fully insured, you can, of course, ignore the stories and leave your money where it is. Another bank will buy the assets and you'll be able to use your money without interruption in most cases. Participating in a bank run can help accelerate or cause a bank's failure, and it might just be a waste of your time.