Checking your bank or credit union's financial rating
Posted 29 February 2008, 06:00 in Personal Finance Leave a Comment
If you do business with any financial institution, they will undoubtedly check your credit score. Why not do the same to them?
Not all banks are created equal. And although your money is insured for up to $100,000 through the FDIC (NCUA for credit unions), anything over that amount is at risk. Even if you do not have that much money in your bank account, knowing that your money is in good hands is a nice thing to know.
A quick search on any bank’s rating yielded Bankrate.com’s safe and sound service:
Bankrate.com’s Safe & Sound® service is a proprietary system designed to provide information on the relative financial strength and stability of U.S. commercial banks, savings institutions and credit unions. The system employs a series of twenty-two tests to measure the capital adequacy, asset quality, profitability, and liquidity (CAEL) of each rated financial institution.
There are two types of rating system that Bankrate displays. The first is CAEL, which is an analysis of financial data that is submitted to the government on a quarterly basis. The second is Bankrate’s star system, which is basically the CAEL number translated into stars. A CAEL rating of 1 will translate to 5 stars, or superior rating. A CAEL rating of 2 will translate to 4 stars, or sound rating, and so forth.
Hawaii top financial institutions, 3rd Quarter 2007.
I did a comparison between Hawaii’s largest banks and credit unions and found that both have similar safe and sound ratings with the exception of one bank.
First Hawaiian Bank is rated 4 stars, which means that it has a “sound” financial rating. For quarter ending September 2007, FHB’s ROI was 1.68%, compared to the bank industry’s average of 1.0% return. This is good because First Hawaiian Bank is making sound investment decisions and its return is above the industry’s par. On the other hand, American Savings Bank is the only bank that rated below its peer group, with a “performing” rating as a result of measly 0.70% return on investment (at least it was not negative).
HawaiiUSA Federal Credit Union is rated 4 stars, which also means they have a “sound” financial rating. For quarter ending September 2007, HawaiiUSA’s return on investment was slightly less than FHB’s at 1.27%, which is still above par to the credit union industry’s 0.8% return.
I chose to compare banks with credit union only to show that banks are not necessarily better than credit unions. In fact, in terms of services provided, credit unions provide the same type of service as banks but for less. So the next time you are on a hunt for a financial institution, be sure to check out their financial rating to be sure that your money is safe and sound.
Related Links: Bankrate.com Safe & Sound | FDIC: Failed Bank List
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