Tag Archives: bank

What’s Up With the Banks?

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The banking industry has been going through a bit of chaos lately.  During the financial crisis of 2007-08 it was several big banks that found themselves in trouble and needed a government bailout to survive. They had too much of their money invested in risky sub-prime mortgage loans that were falling into default.  This was getting them into a position where they didn’t have enough cash on hand to manage things if too many of their depositors were to come and withdraw their funds.  That’s why Congress passed the Dodd Frank Act, which required a higher level of oversight on banks.

Only two days after SVB failed, Signature Bank ran into a similar situation by having too much of their portfolio invested in the volatile crypto currency world.  Then came Credit Suisse, who lost some of their backing support for making risky investments.  Banks are failing more rapidly than I expected I would ever see again.

So what does all of this mean for you?  Probably nothing at all.  The average person in the U.S.  has much less than $250,000 deposited in any one financial institution.  Anything up to $250,000 is protected by the Federal Deposit Insurance Corporation.  And it is highly unlikely that anyone would need to take all of their money out of the bank at the same time.  That’s just not how the financial world works in the 21st century.  It’s entirely possible that more banks may fail.  It may be soon.  It may be far down the road.  But it will probably happen as long as banks are making poor investment decisions (always diversify your investments!!).  I suspect we may be in for a bit of a rocky road for the foreseeable future.  But I don’t think it will affect most average people. And right now I’m happy to be average.

 

Credit Unions: Paying me back for my business!

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Last week, for the third year in a row, I got an email from my credit union telling me that they were going to deposit a portion of their profits into my account.  When typical banks earn profits, they portion that money out to their shareholders in the form of dividends.  In the case of a credit union, however, the shareholders are the people who have their accounts there.   And my credit union, wanting to pay back the shareholders, has been sharing their profits for each of the last three years.  And this is only one of the many reasons that I love my credit union.

I switched from a bank to a credit union several years ago when I was discouraged by the very low interest rates being paid on my savings.  (This was before the bottom fell out of interest rates at the end of the last decade—now no one is earning much in interest on their savings!)  But I’ve never regretted the decision to make the move.  I’ve found that day to day banking life is just easier and better with my credit union than it was with my old bank.  Online banking services are free.  They never charge me to use an ATM, and they will reimburse me up to $20 per month in ATM fees charged by other banks.  They made it easy for me to set up transfers to and from other banks.  I can deposit checks with my smart phone or by mail.  They make automatic transfers and online bill paying very easy.

Many people think that you need to have a bank that is local.  I disagree.  The closest branch of my credit union is 100 miles away, and it’s never been a problem for me.  I set up my account initially by mail.  I made deposits by mail for years until the smart phone technology came around.  I get money by ATM (I prefer the fee-free machines at Sheetz).  Most of my transactions are either electronic or by plastic.  I’ve applied for loans with my credit union online and completed the paperwork by mail and fax.  It’s very easy in today’s world to live without a bricks and mortar banking institution, so that should not be a deterrent for anyone.

The one catch with credit unions is that you must qualify for membership.  It may be tied to where you work or go to school.  You may have to have membership in a certain organization in order to qualify to join the credit union.  You may have to live in a certain area.  So you’ll have to do a little digging to find out if you are eligible to join (though all Penn State students are eligible to join the Penn State Federal Credit Union).  But after the leg work is done, you’ll likely be happy with your banking experience.  And you may even get some cash back!