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Whether you’ve just earned your first paycheck or you’re getting ready to retire, you know you work hard for your money. Trusting a bank with your earnings is an important step.
The fine print may seem complicated, but you don’t need a degree in finance to understand this important relationship. Here are four basic questions your bank should be able to answer to earn your trust.
Is the bank FDIC-insured?
Before you deposit your money into an account at any financial institution, you should verify that the institution is insured by the Federal Deposit Insurance Corporation (FDIC).
Typically, your account at an FDIC-insured bank automatically will be covered up to $250,000 at no cost to you. In the unlikely event of a bank failure, the FDIC pays account holders either by opening an equal account at another insured bank or with a check for the insured amount, backed by the federal government.
Banks that are insured by the FDIC usually make it known that they offer this benefit in promotional materials and by displaying the FDIC logo prominently, but to be safe, you can use the FDIC’s BankFind tool to verify if a bank is insured — and for what amount.
How has the bank resolved complaints in the past?
When you’re planning a night out, you might rely on customer reviews to determine what movie to see or which restaurant to visit. The stakes are greater with your bank accounts, though, so it’s important to rely on credible information that tells the whole story.
The Consumer Financial Protection Bureau (CFPB) is a federal agency dedicated to making sure consumers are treated fairly by banks, lenders and other financial institutions. It has helped more than 3.3 million people get responses to their consumer complaints.
The CFPB’s Consumer Complaint Database offers thorough, searchable data on how financial institutions respond to complaints so you can get an idea of what to expect from a bank based on documented, unbiased reporting.
Is the bank financially healthy?
Many factors contribute to the overall financial health of a bank, but some basic questions to ask your banker include:
• Capital: Does the bank enough capital on hand to maintain stability?
• Liquidity: Does the bank have a good balance between liquid and illiquid holdings so that it is able to handle short-term obligations for its depositor?
• Profitability: Is the bank efficient with its assets? Some key metrics are return on assets (ROA), return on equity (ROE) and net interest margin.
• Credit ratings: Agencies such as Standard & Poor’s, Moody’s and Fitch Ratings can provide comprehensive credit ratings for banks, offering an independent picture of a bank’s health.
What security measures does the bank take to protect customer accounts and transactions?
The ease of online banking is important, but even more valuable is the peace of mind that your accounts and transactions are secure. Here are a few signs that your bank is proactive in protecting your money:
• Make sure your bank employs two-factor authentication (2FA) or multi-factor authentication (MFA) for access to your accounts. These methods require more than one step to sign on, such as passwords, authentication codes or security questions.
• Look for the padlock symbol in your web browser’s address bar, signaling that the bank is using secure encryption protocols to protect your data.
• Ask about fraud monitoring and detection, as well as activity notifications to keep you informed about any changes to your account.
• Read the privacy policy and be sure you understand how the bank will use your personal data.
