Taking the easy option and keeping all of your money in one bank is not the most fiscally prudent route to follow. With turmoil in financial markets and the possibility of bank failures it can be a safer option to spread your cash around between institutions. Those with substantial deposits have the assurance of their funds being insured to a certain level, but in a worst case scenario access to funds could well be delayed whilst the crisis is dealt with.
In the U.S. the Federal Deposit Insurance Corporation (FDIC) guarantees “Each depositor insured to at least $250,000 per insured bank.” Each depositor must thus ensure that the bank they trust to lodge their funds with is indeed insured. In the U.K. the Financial Services Compensation Scheme insures individual depositors up to £85,000 per insured bank.
Those with substantial savings should take note of these limits and ensure a lesser amount is held in their accounts to allow for interest being applied. If a bank failed and a depositor had the maximum insured amount prior to interest, any interest accrued would not necessarily be covered. It is also worth stressing that the insured amount is per bank rather than per account, thus an individual with two accounts should ensure the total does not exceed the bank insured limit.
Many people have accounts that do not contain such high deposits and are thus at less risk. It can be convenient to have checking and saving accounts at one bank to ease transfers between accounts, though this is easily facilitated between banks by using automated debits. U.S. banking customers do not have the ease of choosing several banks to hold their money in as have less access to fee free banking.
In the U.K. savers are not charged to hold several savings accounts so can more easily spread their wealth around, choosing one bank for cash ISA’s, another for high interest taxable savings, and another for a current account. In fact it still makes sense to engage in a spot of carpetbagging and hold a range of saving accounts in traditional building societies that have not yet converted, in the hope of a windfall.
In a highly competitive banking market it is worth reviewing both checking and savings accounts regularly. Many internet banks are now offering fee free banking, and some checking and current accounts are offering a higher yield on balances than many savings accounts. There is no pressing need to retain the same bank from habit and customers should actively seek out better deals, opting for the best checking account with one bank whilst considering another bank or banks for savings.
Customers with more than a minimal balance can benefit by not keeping all their money in one bank, but by seeking the best deals whilst protecting their investments. Whichever option is chosen the crucial factor is ensuring that deposits are bank insured.