High Interest Savings Accounts | FDIC Insured and Why That’s Not Enough
Talk About Better Times Ahead While the Minions Do the Dark Work of Winding Down Insolvent Banks
Since the collapse of Lehman last September the Fed has closed down (at last look) 92 banks in 2009. Why does it seem odd to be talking about an improving economy in the face of more bank closings? Because it IS odd. What the Fed doesn’t want to talk about is that it’s regulators and auditors are still working through the flailing psuedo-solvent banks that are being allowed to quietly and slowly grind to a halt rather than cause a panic and a general run on the banking system.
Seeing a Lot of This in Your Neighborhood?
What this means for average saver at their local savings bank is that there is every reason to believe your local bank is vulnerable. Are you living in an area with a lot of foreclosed homes / homes for sale? Have a lot of companies gone out of business? Are a lot of people unemployed? It would be naive to think that a local bank would not be impacted by a local economy suffering from high unemployment and high foreclosures / bankruptcies. Local banks in many cases got stuck with loans they were unable to sell into the Fannie Mae / Freddie Mac MBO system and because these loans were essentially the last of the housing bubble loans they tended to be the worst quality. Talk about being stuck as the last guy holding the match! It’s been more like they got stuck holding a burning stick of dynamite!
How Online High Interest Savings Account FDIC Insured Institutions Fared Better
Online high interest rate savings banks have by and large fared better in this downturn I think in large part because they were buyers of securities rather than originators. I’m not going to say I can prove that however it stands to reason that while investors in MBOs got burned, the MBOs that actually made it to market were still of better quality than the loans that had YET to make it to market. That isn’t a judgement saying that the MBOs were GOOD… only that they were likely better. Further, online savings banks had the ability to choose which assets to buy and, given a good risk management policy (involving duration matching of deposits and assets) were likely to come out better.
Ok so there is one online high interest savings bank FDIC insured which you probably would prefer NOT to have your money in these days and that would be Citibank. Despite massive capital infusions from a Saudi Arabian prince, Citibank is still trying to unwind its tangled mess of seriously bad investments. Citibank is a good example of the notion that just because you HAVE a risk management policy doesn’t necessarily mean it’s a GOOD one.
The Bottom Line: What Use Is It to Know Any of This?
Good question, and you should have several of the answers already swimming in your head. First of all if you have a chunk of money stuck in a savings account locally you’re going to take a serious look at the neighborhood and check your state’s unemployment figures for your town. Next you’re going to think to yourself, “Is my bank heavily invested in my high unemployment / high vacancy / high foreclosure rate town?” If the answer is “Yes” then you should be asking yourself, “Can I afford to wait days or weeks while the FDIC makes good on my account deposits while they close the bank?” If the answer is “No” then you know what to do. Get a high yield online savings account with a solid bank.
