By Eric Tyson

Most folks know to look for a bank that participates in the U.S.-government-operated FDIC program. Otherwise, if the bank fails, your money on deposit isn’t protected. FDIC covers your deposits up to a cool $250,000.

Some online banks are able to offer higher interest rates because they are based overseas and, therefore, are not participating in the FDIC program. (Banks must pay insurance premiums into the FDIC fund, which adds, of course, to a bank’s costs.) Another risk for you is that noncovered banks may take excessive risks with their business to be able to pay depositors higher interest rates.

When considering doing business with an online bank or a smaller bank you’ve not heard of, you should be especially careful to ensure that the bank is covered under FDIC. Don’t simply accept the bank’s word for it or the display of the FDIC logo in its offices or on its website.

Check the FDIC’s website database of FDIC-insured institutions to see whether the bank you’re considering doing business with is covered. Search by going to the FDIC’s Bank Find page. You can search by the name, city, state, or zip code of the bank. For insured banks, you can see the date when it became insured, its insurance certificate number, the main office location for the bank (and branches), its primary government regulator, and other links to detailed information about the bank. In the event that your bank doesn’t appear on the FDIC list, yet the bank claims FDIC coverage, contact the FDIC at (877) 275-3342.

In addition to ensuring that a bank is covered by the FDIC, investigate the following:

  • What is the bank’s reputation for its services? This may not be easy to discern, but at a minimum, you should conduct an Internet search of the bank’s name along with the words complaints or problems and examine the results.
  • How accessible are customer-service people at the bank? Is a phone number provided on the bank’s website? How hard is it to reach a live person, the local branch, and its personnel (including the manager)? Are the customer-service representatives you reach knowledgeable and service-oriented?
  • What are the process and options for getting your money out? This issue is a good one to discuss with the bank’s customer-service people.
  • What fees are charged for particular services? This information should be posted on the bank’s website in a section called something like Accounts Terms or Disclosures. Also, request and inspect the bank’s Truth in Savings Disclosure, which answers relevant account questions in a standardized format. This figure is an example of an online bank’s disclosure for savings accounts.
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A sample Truth in Savings Disclosure statement from an online bank.