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 Dear
Dr. Don,
When the difference between two banks is a higher APY (5.36
percent vs. 5.30 percent) on a MMA/savings account versus a safer bank rating
(two star vs. five star), which is the better choice?
If both banks are FDIC-insured;
does it matter?
-- Rob Risk  Dear
Rob,
A basis point is one-hundredth of 1 percentage point. You're
comparing a 6 basis point difference in yields on the two accounts. On a
$10,000, one-year deposit, a 6 basis point difference in yield is $6. It's
not inconsequential, but personally, I'd need a bigger pickup in yield to move
from a five-star bank to a two-star bank.
If you have an insured deposit with
a financial institution that is a member of the
FDIC, that deposit is backed by the full faith
and credit of the United States government. That's
also true for NCUSIF-insured shares at a credit
union, so your money isn't at risk.
If your money isn't at risk, why care about a financial
institution's safety rating? The reason is primarily convenience. You
don't want to deal with delays in accessing your funds if a bank does become insolvent.
However, it is the FDIC's stated goal to make deposit insurance payments within
one business day of the failure of an insured institution.
Where does that leave us? Feel free
to chase yield in FDIC- or NCUSIF-insured accounts
when your deposits or shares are fully insured,
but look for more than a few basis points pickup
in yield to make it worth your while.
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