What's In a Bank Name?
There are some strange bank names out there. State Bank of India? That can't be FDIC-insured, right? What about Redneck Bank? Is that some kind of practical joke? Actually the answer is a resounding no. Similar to how the name of a car is meaningless in evaluating what is under the hood, the name of a bank is just window dressing. State Bank of India is FDIC-insured and is offering competitive CD rates of 3.80% on a 5-year CD and 3.55% on a 3-year CD for deposits of $5,000 or more. Redneck Bank has a humorous website which includes a picture of an outhouse, but also is offering a high-yielding FDIC-insured reward checking account. Meanwhile, the list of banks which have been closed this year by the FDIC includes banks with important sounding words in their name like integrity, security, and priority. In the end the fancy and distinguished-sounding bank names for these banks were not enough to overcome a balance sheet full of bad loans. Even bank names that have been around for 100 years like Wells Fargo Bank or Chase Manhattan Bank are no indication of financial health. Unfortunately, many of the biggest banks in the country are now partially owned by the U.S. government through the TARP program. Without the government bailout dollars, these banks may not have survived. As it is, these big-name banks have sucked up millions of taxpayer dollars. Clearly disregarding the bank name is a good idea, but what should you look at when deciding which bank to open a deposit account with? Here are three good tips:
Everyone knows that the FDIC insures banks in the United States, but did you know that the FDIC also insures some banks in Puerto Rico? Or that the FDIC insures global banks like HSBC Bank and State Bank of India who have FDIC-insured banks based in the United States? It's 100% accurate that you always want your bank to be FDIC-insured. However, don't let the bank name fool you! Do your own homework. Check FDIC.gov to verify if a bank is FDIC-insured.
If you find a bank online and open an account, you are typically finding higher rates and more account features than what might be offered by the banks in your local neighborhood. Of course, you also giving up the ability to walk down the street and talk to a teller regarding a question about your account. Some online banks make up for this by offering online customer service. With this feature you can interactively communicate with a bank representative without leaving your house or using a phone. But before you sign-up for an online bank account, test-drive the site or call the toll-free customer service number to ensure that you are satisfied with the service options offered. You don't want any surprises down the road.
Easy to Understand Rates & Disclosures
When shopping for a bank rate online it is important to read through all the rate restrictions and discloures. Bank deals come in all varieties and in many cases the giant teaser-rate that has grabbed our interest has qualifiers or restrictions. It only takes about ten minutes to open an account online with a bank, but this is not long enough to fully understand all the bank policies including early withdrawal penalties. Instead of trying to read the tiny fine print on the computer screen, print out the disclosures and review them carefully at your own pace. The bank name is not important, but fully understanding the bank offer is imperative.