Bank Rating: does it matter?

rocioNovember 8, 2008

Since most banks are FDIC insured, does a rating matter?

I have been looking for a safe place to park my cash. I found a bank in my area which offers better rates than my primary bank does.

I checked its rating at bauerfinancial.com. It has two stars.

Currently, it is offering 11 mo CD with 4.11% rate (min $10,000). The rate is attractive, but the rating is not. I also found out at reuters.com that it's portfolio has Mortgate-backed Securities.

Its rating and holding concerns me, but it is FDIC insured. Shoud I worry about these negatives? Or go ahead and just put money in the bank?

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lucy

Either check what the ratings signify (it might or might not matter for your purposes), or else just use another bank.

    Bookmark   November 8, 2008 at 5:02AM
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patser

First off there is nothing inherently wrong with ALL mortgage backed securities. Those mortgage backeds that are comprised of sub-prime mortgages that are in foreclosure or default are the ones that are more risky.

That said, a lower rated bank isn't able to raise cd money at the going market rates. Lower rated banks have to pay the higher, and to you, more attractive rates in order to raise money.

You say you want a safe place to park your cash. And then you say you want to park it in a 2star bank. Something doesn't mesh. If it was my money, I'd save the hassle/worry and go with a more stable bank. As you can see from the attached list, the FDIC does close banks.

Here is a link that might be useful: FDIC closed banks 2008

    Bookmark   November 8, 2008 at 5:25AM
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chisue

What is the worst that could happen? If the FDIC-insured bank does close, you get your money back within days, including all interest earned to the date of closing. Then you'd have to find another insured bank to open another CD, so let's say you lose a week of interest. If there's a large spread between interest rates, why NOT use the less highly rated bank for an FDIC-insured instrument?

    Bookmark   November 8, 2008 at 7:33AM
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arizonarose

You know, I was thinking the same thing...what difference does the rating make as long as it's FDIC insured. We had a couple of CD's mature and switched banks for a higher interest, didn't even check the rating. If the bank fails, either another bank will take over or the FDIC will cover our money.

    Bookmark   November 8, 2008 at 9:17PM
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rocio

Thank you all for your comments.

I guess I don't have to worry about it too much.

    Bookmark   November 10, 2008 at 1:23AM
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