July 14, 2008

Bank Failures - How to Avoid Exposure

With the failure of IndyMac over the weekend, concern about the safety of your savings is of paramount importance in many people's minds today. I will try to help answer any questions that any reader may have to help you make a decision on what actions, if any, one should take.

Remember, your deposits are insured up to $100,000, but there is no standard process on how one can get access to their money, even that less than $100,000 in the event of a failure. But at least you know that you'll be getting it all back! Here is a quick and dirty check-up that you can perform on your bank:

Go to http://www.bankrate.com/brm/safesound/ss_home.asp and plug in the bank(s) you are considering. Check the rating and then read memorandum for the particular bank. There is almost certainly a 4 or 5 star local bank within driving distance and probably within a few miles.

To give you an example of what to AVOID, look at IndyMac Bank. Prior to them going bankrupt, they had been given the worst possible rating and they had a negative ROI! The average for the whole industry the first quarter this year was .7%. Typically, 1% is considered "good." IndyMac was -7.0%. Not -0.7% but -7.0%! This was a big red flag.

Then go to http://www.bauerfinancial.com and check the rating they gave the bank as well. Sometimes the ratings will differ. But my thinking is if the bank in question has a high rating from both then that is a good sign while if it has a low rating from both then that is a bad sign.

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