Is It Possible to Have Too Many Bank Accounts?

A good majority of people have several bank accounts which were set up for different reasons and purposes. Typically, consumers have at least one savings account and one checking account if not more. But is it necessary to have more than that when managing your money?

Benefits to Limiting Number of Bank Accounts

While it may seem logical to some people to establish several accounts to handle money for different reasons or to take advantage of higher interest rates, it can be detrimental to keep multiple accounts open. Here are some reasons why:

  • You’ll pay more in fees for maintaining a variety of accounts
  • You increase the risk of becoming the victim of identity theft
  • You have more accounts to monitor on a regular basis
  • You will have more terms and conditions to keep track of and abide by

Analyze Which Accounts Are Unnecessary

Consumers who have bank accounts open with several banks need to take stock of which accounts are in the best interest of their personal financial plans. You should consider consolidating financial accounts that are not used often and have no other benefit to you. Keep only those that remain active or you may face continual fees for inactivity with some banks. Do a comparison search online between several banks to see who is offering the best deal if your current bank is not up to par with your financial needs.

Multiple Accounts is Not Good Accounting

Some will open several accounts as a way to better track and manage money. It can be a wasted effort and incur too many fees to take the place of real accounting measures. While you may want a savings account strictly for savings, one checking account and a good ledger book is all you need to manage your money regardless of where it is coming from or going to.

When Multiple Accounts Make Sense

There are some exceptions for keeping multiple accounts. Some situations may dictate that having several accounts is actually beneficial including:

  • Dependent accounts – when a child has an account held jointly with a parent
  • Special tax incentives – some accounts will offer tax incentives for establishing and maintaining an account for a special purpose such as education, retirement, and health accounts.
  • Savings accounts for CDs – when a saving account is invested in certificates of deposit that have different maturity rates.
  • Small Business accounts – accounts that are opened by a small business owner as a way to separate business from personal finances.

Overall, it is best to limit where you are stashing your regular cash. As banks are constantly working to gain more business, they remain extremely competitive. You can use that to your advantage to get your current bank to up the ante with better incentives or you can find a new financial institution that is more inline with your needs.


Ally Bank Bows to FDIC, Slashes Rates

Should a well funded bank be able to set their own interest rates to attract new customers, or should they bend to the pressure from the Federal Deposit Insurance Corporation (FDIC) to lower interest rates? If you support the free market, your answer would probably be no. But that is what recently happened when the American Bankers Association (ABA) sent a formal letter of complaint on behalf of its members to the FDIC.

The complaint stated that Ally Bank was offering higher interest rates than its competitors, and that Ally Bank had plans to receive funds through the Treasury Liquidity Guarantee Program (TLGP).

The FDIC’s Temporary Liquidity Guarantee Program backs financial institutions and allows them to borrow money at near-Treasury rates in exchange for a fee. Because Ally has been approved to borrow money from the TLGP, some ABA members complained they were using the TLGP funds to attract new customers by offering higher interest rates that was reasonable in the current economic environment.

Should the FDIC control interest rates?

The government shouldn’t regulate every aspect of private industry, but the lines become less clear when there are government bailouts or even government ownership on the line. The FDIC responded to the ABA’s letter by sending a letter of their own to Ally Bank, essentially telling them to lower interest rates so long as they participate in the TLGP.

What does this mean for Ally Bank members?

Overall, not much will change except interest rates. Ally Bank accounts are still covered by the FDIC so there should be no problems with customer funds no longer being guaranteed, and there should be no other differences noted by customers. Unfortunately, it means that new customers who were lured by the promise of higher interest rates will see them fall a little bit – through no fault of Ally Bank. It’s just an unfortunate change of events from a customer perspective.


Ten banks paying back TARP early

Ten major US banks received approval to repay Troubled Asset Relief Program (TARP) funds early, potentially leading to a repayment of $68 billion in taxpayer bailout money. The Treasury Department did not disclose which 10 banks were given approval for early TARP repayment. However, several banks have already publicly stated their intention to pay back the TARP funds if given approval.

Banks paying back TARP early

Some of the banks who are thought to be paying back their TARP funds early include Capital One, BB&T, and U.S. Bancorp, and most of the banks that it was determined would not need new capital after the bank stress test results were released last month. Those banks include Goldman Sachs, JPMorgan Chase, American Express, Bank of New York Mellon, JPMorgan Chase & Co., and State Street.

So far, the only banks the US Treasury department has allowed to pay back TARP funds have been small banks, totaling almost $1.9 billion.

Paying back the TARP funds is like kicking a bad habit

The banks can’t wait to get rid of the TARP funds because of increasing restrictions and limitations imposed by the government. To get rid of the TARP, banks were required to raise billions of dollars in funds to ensure they had enough reserves to weather substantial losses.

Overall, this should increase the banks’ flexibility in dealing with the economic crisis.


$250k FDIC Deposit Insurance Extended to 2013

The Treasury Department recently approved the FDIC’s request to extend the temporary deposit insurance limit of $250,000 from the end of 2009 to 2013. This move was made to add stability to the banking industry and instill more consumer confidence in our economy.

Until last year, the FDIC insurance deposit limit was $100,000. However, consumer fear and failing banks lead to the approval of a temporary increase in insurance coverage. The $250,000 limit was set to expire at the end of 2009, but now has added life.

According to the FDIC, on January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except for IRAs and other certain retirement accounts which will remain at $250,000 per depositor.

National Credit Union Share Insurance Fund (NCUSIF) insurance limits have also been extended through the end of 2013. The NCUSIF protects money held at credit unions and is administered through National Credit Union Administration (NCUA). The limits are also $250,000 per account and are set to return to previous levels on January 1, 2014.

The FDIC and NCUSIF protect your money

Thanks to the FDIC and the  NCUSIF, no protected account at a bank or credit union has ever lost money due to a bank failure. For more information about how the FDIC works, check out this great video: Watch the FDIC Takes Over a Bank.

referral bonuses

Get a Free Garmin GPS at Key Bank

Key Bank is offering new customers a free Garmin GPS for signing up for their free checking account. It’s a pretty sweet deal if you live in one of the states where Key Bank operates!

Get a Free Garmin nüvi 205W GPS

Key Bank is offering new checking account customers a FREE Garmin® nüvi® 205W GPS when you open a Key Express Free Checking account or a Key Advantage® Money Market Checking account. You will also need to make one debit card transaction plus a combination of two direct deposits and/or automated payments each of $100 or more.

Get a Free Garmin nüvi 265WT GPS

Key bank is offering a higher model GPS system to new customers who sign up for any of the following checking accounts: Key Privilege® Checking and Key Privilege Select Checking.

The requirements for the free Garmin® nüvi® 265W GPS are the same – make one debit card transaction plus a combination of two direct deposits and/or automated payments each of $100 or more. However, there is a $25 monthly service charge for the Key Privilege Checking accounts unless you maintain a minimum balance of $25,000.00 in any combination of checking, savings, CDs, retirement deposits, investments, credit cards, loans and lines of credit. The Key Privilege Select Checking account requires a minimum balance of $100,000 to avoid monthly service charges.

Unless you are already a Key customer, you would probably be better off getting the free Garmin 205 GPS and putting your money into a high yield savings account to earn better interest rates.

Get your free Garmin soon!

You must open a qualifying checking account at KeyBank by May 15, 2009 and meet the other requirements (debit card transaction and 2 direct deposits or automated payments of $100+) by July 17, 2009. I noticed they have extended this deal twice already, so it is possible they will do it again – but probably only until their supplies are exhausted. So take advantage while you can!

Here are the official details. Note – only available in the following states: Alaska, Colorado, Connecticut, Florida, Idaho, Indiana, Kentucky, Maine, Michigan, New York, Ohio, Oregon, Utah, Vermont, and Washington.

*Like all bank referral offers, the value of the GPS will be reported on your 1099.


Banking News Update

There has been a lot of action lately in the banking industry and the stock markets. I recently wrote about how fair value accounting could boost the value of bank stocks. Since then, much of the banking industry has been on a tear – in some cases climbing 30% or more. I’m not recommending that anyone invest in bank stocks though. Always do your due diligence before investing in any stock or industry.

Profits up for some banks

Last week Wells Fargo announced they were expecting a $3 billion profit – which was a pleasant surprise for the banking industry. Both Citigroup and Bank of America also recently announced that they operated at a profit during the first two months of the year.

Still some dangerous times for banks ahead

While some of these banks are currently operating at a profit, they also have a lot of toxic assets remaining on their books. The operating profit does not include such items as reserves for credit losses, nor does it account for troubled assets that may not be repaid in the future. The results look good now, but charge offs and failed mortgages and other debts could cause big problems down the road. Many banks are going to need to continue raising capital to hedge against loan defaults.

Related High Yield Savings Account information.

A previously published article, How the FDIC Takes Over Banks, was recently included in the Carnival of Pecuniary Delights No. 3 – The Money Box Edition, which was held at Miss Money.


Fair Value Accounting to Boost Bank Assets?

In light of the current economic crisis, the US Government decided to give banks and other institutions more leeway in the method they use to determine the value of their troubled assets (read subprime mortgages). This change means that banks are now able to set the value of the “toxic assets” they hold in their portfolios, which will affect the bottom line of their balance sheets from here on out.

According to CNN:

The Financial Accounting Standards Board, the private sector body that sets U.S. bookkeeping rules, moved Thursday to adopt a rule that makes clear that firms need not write down the value of their assets based on so-called distressed sales of similar assets by other banks.

Banks stock prices to rise?

This could potentially cause bank stocks prices to rise because they can report the value of their assets as they see fit – regardless of actual value. While the value of their balance sheet will change, that doesn’t change the underlying assets they hold, or the underlying risk of owning bank stocks. Just because stock prices increase, doesn’t mean it’s a good time to buy. In fact, this is removing one more layer of protection for the investor and consumer – which is exactly what got us in theis mes in the first place.


How the FDIC Takes Over Banks

Many US banks have already failed in 2009, and economists are forecasting more bank failures before the year ends. The economic crisis has hit many banks, large and small.

If you ever wanted to know what happens if your bank fails, this 60 minutes video shows how the FDIC comes in to take over banks when they fail.

3 Ways the FDIC can close a bank:

According to this video, the FDIC can close a bank one of three ways:

  1. Close bank and pay depositors
  2. Run the bank themselves
  3. Sell the bank to someone else to run

Of these options, the FDIC usually prefers to find another financial institution to run the bank, that way they aren’t on the line for reimbursing as many customers.

Make sure your deposits are protected

Always make sure the bank you join is a member of the FDIC, so your deposits will be covered in the event of a bank failure. If you join a credit union, make sure your credit union is a member of the NCUA, which is a similar government agency that protects deposits in credit unions.


More Banks Fail and More Bank Failures in the Forecast

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.


What Happens if Your Bank Fails?

bank-failures-by-stateAs of Early February, there have been 34 bank failures in the US in the last 13 months, including 9 already in 2009. That is a large enough number to cause concern for the banking industry. But does that mean you should be concerned?

Not if your bank is a bank that is covered by the FDIC or the NCUA. If your bank is covered, so are your deposits, up to the federal limits.

FDIC and NCUA insurance limits

Until last fall, those insurance limits were $100,000, but the federal FDIC and NCUA insurance limits were temporarily raised to $250,000 to entice more people to leave their money in bank deposits, which would allow banks to lend more money. This higher FDIC limit is set to expire December 31, 2009.

Should you worry about your bank failing?

Not really. As long as your bank is covered by the aforementioned federal programs, then you don’t have much to worry about unless your deposits are above the limits. If they are, try putting money in your spouse’s name, a high yield CD, or into another top high yield savings account. That way you maximize your protection under the FDIC and NCUA insurance limits.

Bank Safety is important

In a recent post we talked about bank safety when we asked the question – is online banking safe? The answer is probably yes, so long as you are taking the proper precautions – using updated software and operating system, anti-virus software, updated spyware program, etc. You can never be too careful when you are dealing with your online bank accounts!

Photo source: CNN Money.