More Banks Fail and More Bank Failures in the Forecast

by High Yield Savings Accounts

The news seems to get worse each day – US banks are failing at a rate that hasn’t been seen in decades. According to this CNN article, there have already been 14 bank failures through the middle of February. There were 25 bank failures in 2008, meaning we are over halfway to last year’s number of bank failures through 2 month. And more bank failures are on the horizon.

What should you do if your bank fails?

In a previous article I asked the question What Happens if Your Bank Fails? The short answer is that if the bank is covered by FDIC insurance or the NCUA, then you don’t have much to worry about as long as you didn’t have deposits above the limits.You may consider moving your money to another institution, but the bank will likely be absorbed by another financial institution or otherwise taken over, so it shouldn’t matter much. The bigger problem is with the system.

How do bank failures affect the US?

Banks failures are hurting the US. Consumers and tax payers are losing confidence in the banking industry and the government is spending billions of dollars on FDIC insurance payments. The collapse of IndyMac last summer cost taxpayers $8.9 billion from the FDIC fund, and the FDIC maintains that losses will extend up to $40 billion by 2013. With banks failing at the current rate, don’t be surprised if the final numbers exceed expectations.

A downward spiral?

Banks are hurting due to bad loans and mortgages and no longer have the cash flow to continue making as many loans. The Fed lowered rates to roughly 0% to increase the lending rate, but that also means banks aren’t making as much money on loans. The lending market has also dried up, with lending restrictions tightening and fewer loans being made. Few new loans at lower rates means lower cash flow. See where this is going? Yeah, it’s ugly, and it’s getting worse.

What does this mean for high yield savings accounts?

Well, your money should be safe as long as you bank with an institution covered by the FDIC or NCUA. But as you have probably noticed already – interest rates for high yield savings accounts have dropped dramatically over the last few months and will continue dropping for the foreseeable future. Better start looking into high yield CDs if you want to lock in higher returns.


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