Just How Safe Are All Those Online Banks? It Depends . . .

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FDIC insures deposits in many, but not all.  So do some checking

Question: How can investors know money at an online bank is safe?

Answer: Savvy online investors know keeping uninvested cash with a brokerage is usually a bad idea.  Most brokers sweep cash into money markets paying next to no interest.

So that leaves online investors with another option for cash the do not want to put in the market; an online savings account.  There is no shortage of banks that pay higher rates of interest than brokerages do.  You can usually pinpoint banks with decent interest rates using sites such as Bankrate.com.

Warning: Be careful before blindly mailing your cash to some no-name bank somewhere just to get an extra 0.1 percentage points of interest.  You will want to log into the Federal Deposit Insurance Corp.’s website at FDIC.gov and use the BankFind feature at research.fdic.gov/bankfind.  This tool allows you to look up any bank and make sure it is covered by FDIC insurance, which is a safety net for savers offering $250,000 per depositor in each insured bank.

The FDIC site will show you the company’s FDIC registration information.  If a bank does not show up on the FDIC site, DO NOT put your money in it, no matter what.

*           This article first appeared in the USA Today newspaper, Friday January 4, 2013.

Matt Krantz, mkrantz@usatoday.com

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