Are "online only" bank deposits "safe"?

[Dtail]

Quote:

Originally Posted by harley I just transferred some funds from Ally to Synovus to get my account under the FDIC limits. It took less than 48 hours.

My Ally transfers to BOA is 1 business day.

[GalaxyBoy]

I, too, just completed transferring my cash out of Ally to Schwab, where I purchased their money fund to get a better rate. I routinely transferred between Ally and Schwab and it always takes one business day. Ally's help section says transfers take 3 business days except transfers "eligible for expedited delivery between Ally Bank and accounts you have at other institutions" usually take 1 business day. I guess Schwab is an eligible institution.

[audreyh1]

Quote:

Originally Posted by Dtail My Ally transfers to BOA is 1 business day.

My experience as well.

[Surewhitey]

I finally shut down a couple of small bank accounts (lingering ones) and opened up the Fidelity cash account for purchasing CD's and found the ease of use for everything from remote deposit to debit card management to cash equivalent investments.

I still have a local bank account for little things, but I could see getting rid of it too.

I'd never go with the mega banks... Just don't like them for some reason. Although etrade is now part of a mega... And DW opened a Marcus. I just want to clean up the mess now.

I never go above the $500k limits on any bank / brokerage, except for maybe Vanguard

[freedomatlast]

I moved every cent I had with Ally, out of there last summer, and it was a significant amount of money. Their internal communications are horrible and it's almost impossible to get to talk with anybody directly who has the authority to solve issues. Finally had to get the Office of Comptoller of Currency involved to get it sorted out. That was fun. After my experience with Ally last year, I wasn't surprised at all hearing of the looming bankruptcy risk. At the time, it seemed like circus monkeys could do a better job of running a financial institution.

I never had any money with WF and that's the last place (after Ally) I'd go with any new funds, based on the tons of negative publicity they've had over the last several years. Plenty of posters here also have WF horror stories.

[badatmath]

Quote:

Originally Posted by swakyaby I find online banks very safe, as long as your deposits are kept within the FDIC limits. Over the years, I’ve kept online savings accounts at Discover Bank, Ally, Capital One, and CIBC. I’ve recently closed all of them because their interest rates were no longer competitive with what many money markets are offering today. I found Ally took the longest to transfer funds by ACH to my linked bank account—8 days.

8 days seems ridiculous - why so long?

[target2019]

Quote:

Originally Posted by Safire So, 2023 is going to be a very big year for us and we need to be cash rich (even if other asset poor) for a few particular reasons. Last year, seeing how little Wells Fargo was paying me in interest, I moved the vast majority of my cash to two different online banks. I'm now concerned about the state of one of these banks given that 3 banks have failed in 4 days (2 shut down, 1 voluntarily shuttering). Should I move money back into Wells Fargo? I understand that no bank is truly 100% risk free, but given this is all we have as "cash" (even if under FDIC limits), I do worry in particular about these "online banks". Please advice. Thank you.

As you know, the devil is in the details. You don't mention which online bank(s) you use, just going back to WF.

From what I've seen with in-laws using WF in the past, I would never use that bank.

I use Discover Bank and Schwab Money Market for better interest rates. I have no qualms.

[sengsational]

I just kicked Bank of America to the curb, finally, after over 30 years. We started with C&S, bought by NationsBank, then became BofA. One of the factors was that they managed to sit on ACH transactions for totally unreasonable numbers of days. So when I hear these online banks doing 1 day transfers, it only confirms the move. The other thing is that if you couldn't do something online, and you had to talk to someone, it was a federal case. On the phone, or in person, you waited. Then they didn't know how to do it, or didn't have the authority. I'm always peeved at having to sit there while they fiddle with their system, have to ask someone how to get something done, getting an error, calling their help desk. REALLY?

So now I joined a credit union brick and mortar one mile from my house, and they know my name. They still sometimes struggle with their computer, but not quite as bad.

But to get back to why I'm posting, with online banks, if they have an online system that lets you do everything you need to do without having to talk to someone, then you're golden, or at least think you are. But the first time you need to do something that's not part of a web process, that's when you're going to find out if you love or hate your online bank.

[swakyaby]

Quote:

Originally Posted by badatmath 8 days seems ridiculous - why so long?

I thought 8 days was far too long, especially compared to the 24-48 hour response of the other online banks I closed accounts with. I’m not sure why. I called Ally’s customer service, explained I was closing my account and requested the funds be transferred to my already-linked bank account. Kept checking my bank account for “deposit pending” and that only showed up after 7 business days.

In contrast,
CIBA bank advised me to wait until the monthly interest was deposited to my account (told me the day) and electronically transfer the entire balance to my bank account the following day. Then message the customer service to close the empty bank account. I did that, and the funds transferred to my bank the same day of the request.

[xlf11]

Quote:

Originally Posted by swakyaby I find online banks very safe, as long as your deposits are kept within the FDIC limits. Over the years, I’ve kept online savings accounts at Discover Bank, Ally, Capital One, and CIBC. I’ve recently closed all of them because their interest rates were no longer competitive with what many money markets are offering today. I found Ally took the longest to transfer funds by ACH to my linked bank account—8 days.

Ally has different ACH time depending how much/often you have used ACH transfer. Most of my frequent used accounts take only one business day to either push or pull, while other recent connected and less frequent used may take 3 plus business days. One good feature is Ally has large number of allowed connections (at least 15+), so it's good to be a major transfer hub.

[Tex2]

I use Bask Bank... it gives out frequent flight miles and has given me many free airline trips via American Airlines... but I'm in the process of creating a bank account with Fidelity as that is a major source for my income and it just seems to make sense and they actually pay great dividends and will be able to handle RMDs and such... I hope to get Fidelity set up early next week... then I'll keep some funds with Bask Bank and the majority of funds with Fidelity... that way I can use any ATM to get cash also.. seems to be a good plan

[jimm100]

There are specific reasons for each of the US bank failures that do not apply across the board to all banks. I have not had a moment’s concern about it after trading the Wall Street Journal explanations for each situation. The situation at Credit Swisse is more concerning, but mitigated here. But could be a contagion. Nowhere to hide from that if it starts to shake the global financials.

[tenant13]

I don’t think any bank is safe in the age of social media and mobile banking. 42 billion withdrawn in a matter of hours from SVB tells you that bank runs today are more like a nuclear explosion than a prolonged military campaign of yesterday. FDIC has just decided to make all depositors at SVB whole, which may buy us some time but sends a terrible signal to everyone. Not mentioning depleting the fund.

The way I see it: no US bank will ever be allowed to become the first domino that could trigger the collapse of the whole system. The Fed will just print money to cover whatever upcoming disasters we may face. So I would not worry about the deposits themselves. My concern would be hyperinflation, a likely outcome of the excessive money printing.

[cyber888]

I use Capital One online. Just locked in a 5% CD with them.
They are pretty reliable in transferring funds (takes 1 day).
They consistent rank as one of the 10 Largest banks in the US, but always behind JP Morgan Chase, Bank of America and Wells Fargo (the 3 largest).

[sengsational]

Going from "Is bank X safe" to "no banks are safe because they are all built on a house of cards" isn't something most retirees want to hear, even if there are indications of truth to support the idea. The discussion then goes straight to chaos, so those with the most guns and ammo are the "winners". Personally, I find that leap in the discussion tedious. Hopefully this thread will not become derailed.

[teachme]

As others have stated have no issues with online banks and in my case USAA has been good for our family.

As to OPs concern I do not think the Fed properly understands the risks by the introduction of FedNow. Recommend mitigating as much risk as possible via distributed accounts. For example your money may be guaranteed but if it is locked in the bank for 30-60 days how does that impact your life?
https://www.federalreserve.gov/payme...dnow_about.htm

Case in point of the lack of Fed understanding of current risk look at the date in the source video below where the Fed Vice Chair on Supervision was speaking about how Fed supervised banks "are well protected from Bank runs through a robust array of supervisory requirements" with the dates of current bank failures :cough: SVB :cough:
source: https://youtube.com/live/1-JgMd1HtOE...=shares&t=1661

[copyright1997reloaded]

Quote:

Originally Posted by teachme As others have stated have no issues with online banks and in my case USAA has been good for our family. As to OPs concern I do not think the Fed properly understands the risks by the introduction of FedNow. Recommend mitigating as much risk as possible via distributed accounts. For example your money may be guaranteed but if it is locked in the bank for 30-60 days how does that impact your life? https://www.federalreserve.gov/payme...dnow_about.htm Case in point of the lack of Fed understanding of current risk look at the date in the source video below where the Fed Vice Chair on Supervision was speaking about how Fed supervised banks "are well protected from Bank runs through a robust array of supervisory requirements" with the dates of current bank failures :cough: SVB :cough: source: https://youtube.com/live/1-JgMd1HtOE...=shares&t=1661

Yep, he was "talking his book" in that "crypto bad", "traditional banking good". A fractional reserve system is systemically prone to runs because of leverage, and requires "trust" or money will flee.

So to build ("backstop" ha ha) these institutions, we create things like FDIC insurance to facilitate trust in the system. This in turn causes moral hazard because the investments then become risk free, and we as buyers of risk free will naturally go for whatever has the highest return. This in turn causes the institutions looking for deposits to do ever more risky loans so that they may offer higher "risk free" rates to depositors.

The system is thus prone to failure.

Me, I am gonna pick the CD's with the highest return, regardless of what the bank does with the money.

Don't blame the player, blame the game.

[pb4uski]

Quote:

Originally Posted by copyright1997reloaded ...The system is thus prone to failure. Me, I am gonna pick the CD's with the highest return, regardless of what the bank does with the money. Don't blame the player, blame the game.

The reality is that you can't have a system that accepts demand deposits, make loans for homes and cars and such and have any reasonable expectation that it could survive a run on the bank at the social media induced velocity that we saw at SVB. That is why we have FDIC insurance.

If SVB had just invested in 1-5 year Treasuries then we wouldn't have near as much to talk about.

[teachme]

Quote:

Originally Posted by pb4uski If SVB had just invested in 1-5 year Treasuries then we wouldn't have near as much to talk about.

Good point and one that is being ignored or at best, barely addressed, in the mainstream outlets I've seen.

Another item that added to the SVB issue was they had a robust API which allowed the run to happen at a rate not seen in previous bank runs.
https://developer.svb.com/

[copyright1997reloaded]

Quote:

Originally Posted by pb4uski The reality is that you can't have a system that accepts demand deposits, make loans for homes and cars and such and have any reasonable expectation that it could survive a run on the bank at the social media induced velocity that we saw at SVB. That is why we have FDIC insurance. If SVB had just invested in 1-5 year Treasuries then we wouldn't have near as much to talk about.

The reality is that capital requirements are two low and things like FDIC insurance lead to moral hazard.

A better system would be one with higher capital requirements for banks, and better ability for them to use either short term treasuries or perhaps interest bearing reserves (e.g. held by the Federal Reserve) to offset demand deposits, thus making demand deposits not part of fractional reserve banking.

Banks could also borrow using instruments not backed by FDIC insurance (e.g. things like normal debt) which they could use for longer duration loans.

I'm not saying the above will happen - our system is hooked on the sugar high provided by a fractional reserve system, and like a crack-head, we will continue to see failures whenever the easy money goes away.

ETA: In the meantime, I think I will open another ALLY no-penalty CD at 4.75%. Would I do this w/o FDIC insurance? NO WAY. With FDIC insurance, who cares if ALLY is very reliant on auto loans which might have repayment issues if the economy suffers.