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I'm looking for someplace to put the portion of my e-fund that I want to keep in cash. After looking at options, a high yielding checking or savings account seems the best bet. However, I've never banked online. I'm not interested in bill paying or linking accounts or anything like that. All I want is a safe holding location with easy and quick access.

With that in mind, I've got two questions…

1) How do I check out a bank's soundness?

2) Because of what I want out of this account, is there any reason (besides soundness of the institution) to look beyond who's giving the best interest rate and what their deposit limits are? For instance, if I find Presidential Bank sound enough, why shouldn't I just go with them for their 2.72% rate?

Thanks for the feedback,
nbg
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1) How do I check out a bank's soundness?

Make sure it's FDIC insured.

2) Because of what I want out of this account, is there any reason (besides soundness of the institution) to look beyond who's giving the best interest rate and what their deposit limits are? For instance, if I find Presidential Bank sound enough, why shouldn't I just go with them for their 2.72% rate?

No reason.

Now, keep in mind that some people don't have all of their efund in one spot. For instance, they have $2,500 in their checking account which doubles as a "slush" fund. Then maybe another $5,000 in a money-market account, and then the rest they have locked up in laddered CDs. It is a lot more complicated this way, but they must be getting higher interest rates to put up with all that fuss!

-Agg97
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nbg,

You wrote, 1) How do I check out a bank's soundness?

If the bank is FDIC insured, you can find just about anything you might want to know about the bank by searching for it on this web page: http://www2.fdic.gov/idasp/main.asp

Also, 2) Because of what I want out of this account, is there any reason (besides soundness of the institution) to look beyond who's giving the best interest rate and what their deposit limits are? For instance, if I find Presidential Bank sound enough, why shouldn't I just go with them for their 2.72% rate?

Security.

The problem with a checking account is that it's usually easier for someone to gain fraudulent access to it. For instance, they could write a phony check or ACH the funds to another account they've opened under your name using phony ID. In this regard, checking accounts are riskier than savings accounts and CDs. Of course some institutions accept ACH transfer for savings accounts; but how you access them usually isn't transparent.

That said, there are laws that limit your liability for bank fraud; but recovering the funds can be a hassle. You have to decide for yourself how serious a risk this might be as well as how much your time might be worth should you have to clean up the mess afterward.

In my mind, this added risk makes an ING account at 2.00%APY almost comparable to Presidential Bank's 2.75%. Its almost too bad Presidential Bank doesn't offer a linked savings account that offers that same rate instead.

Ironically most people think our banking restrictions for savings accounts are archaic and out-dated and that you should be able to shift money into and out of them whenever you please. That's unfortunate because I think people forget that a primary reason these restrictions exist is to help limit the account's exposure to fraud.

BTW: I think 2.75%APY is too much to ignore, so I do have funds at Presidential Bank.

- Joel
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1) How do I check out a bank's soundness?


Check out this web page to rate a bank

http://www.bankrate.com/brm/safesound/ss_home.asp
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Sorry for coming back to this after a long time, but I got pulled away from the board for a while.

Thanks for your responses…all very helpful. I took a look at the FDIC link joelcorley suggested (http://www2.fdic.gov/idasp/main.asp) and, yes, there are a multitude of things I can learn. But to the average depositor, which among all those variables on that list do you feel are truly critical?

Thanks for your patience; I'm somewhat new at this type of thing.

nbg
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nbg,

You wrote, Thanks for your responses…all very helpful. I took a look at the FDIC link joelcorley suggested ( http://www2.fdic.gov/idasp/main.asp ) and, yes, there are a multitude of things I can learn. But to the average depositor, which among all those variables on that list do you feel are truly critical?

When investigating a bank, pretend you're buying into the bank's stock. Does the bank have a consistent history of positive earnings? Is it growing? Is it growing too fast or too slow? Is it taking on too much risk for its earnings? Are its margins too thin? Is it accurately estimating charge-offs and is it allocating enough in its charge offs? Are non-current loans growing fast than income?

If the bank has plenty of assets, it can survive while still pushing against market forces. But small banks that are trying to buck market trends are risky investments. The only thing that offsets that for a depositor is that the FDIC requires certain account reporting practices and the Federal Reserve Bank requires a certain amount in reserves. And if there is FDIC insurance, many depositors will risk their money regardless.

Actually, the two 'net banks I use would be too risky, given my own criteria if it weren't for FDIC insurance. Those are ING Direct and Presidential. ING Direct is a little bit of an oddball because a huge multi-national financial conglomerate owns it. So even though ING does not have a stellar financial track record -- margins are thin and they had a few quarters in the red after it entered the online banking arena -- I suspect ING's parent company isn't likely to just let the FDIC take it over quietly. As for Presidential Bank, well they have been turning a profit consistently; but they're not very big and they're not very profitable. So I'd have to conclude that Presidential Bank is actually a bit riskier than ING.

With all that said, I'd say that if you want to be a bit lazy about it, you can just take a look at the bankrate.com ratings, which a previous poster mentioned earlier in this thread.

- Joel
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