There are thousands of banks and other financial institutions in the United States, and consumers have a variety of choices for where to keep their money. Bank health ratings are one tool that people can use to identify where they should invest their assets. Several government and non-government agencies issue bank health ratings, based on a number of criteria and various ranking systems.
It can be a good idea to make sure any financial institution where you are considering depositing your money has a good bank health rating. Here, learn more about how to do this.
What Are Bank Ratings?
Bank ratings express how healthy and reliable a financial institution is. A solid number can inspire you to feel confident about opening accounts with a particular bank.
The Federal Deposit Insurance Corporation (FDIC) is one of the primary governmental agencies that oversees banking in the United States. The FDIC was created in 1933 in the wake of the Great Depression. The entity examines and supervises financial institutions for safety and soundness as well as enforcement of bank regulations. It is one of the primary entities responsible for rating banks.
The FDIC, however, is not the only company that evaluates banks. There are other resources that give banks credit worthiness ratings, such as Standard & Poor’s, Fitch, and Moody’s.
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How Bank Ratings Are Calculated
There are a number of different ways bank ratings are calculated, depending on the institution that is doing the rating. The Federal Reserve, FDIC and other governmental financial agencies use the CAMELS system, ranking bank health and safety on six different criteria:
• (C)apital adequacy
• (A)sset quality
• (M)anagement
• (E)arnings
• (L)iquidity
• (S)ensitivity to market risk
In terms of the FDIC’s Safety and Soundness scale, for example, factors are rated from 1 to 5, with 1 being the highest and best (strong), and 5 being the lowest and worst (critically deficient).
Other companies use their own proprietary ratings systems. For example, for its credit-worthiness evaluations, Fitch uses a combination of letters and numbers, assigning ratings like F1+ and AA- (in this system, a grade of F is actually good).
Bank Safety and Soundness Ratings
Government and credit rating agencies have developed rating systems in order to vet the safety and soundness of banks, including any specific issues that could pose a credit risk.
A bank’s safety and soundness may be determined by a combination of several different factors that make up the overall health and viability of a bank. Often, a critical factor for this is evaluating how well the bank can handle economic fluctuations.
Bank Health Ratings
One aspect of bank ratings is how healthy a bank is. This can include things like the amount of liquidity they have in relation to their total customer deposits, as well as how secure their upper management structure is.
Bank Safety Ratings
Another facet to consider is the safety of a given bank. While a bank’s health and safety are correlated, they are not quite the same thing. Remember too that the FDIC and NCUA (National Credit Union Administration) insure deposits at most banks and credit unions, respectively, in the United States, should a rare worst-case scenario of a bank failure come to pass. The money in your checking account and other types of deposit accounts would be covered.
Recommended: FDIC vs SPIC: What’s the Difference?
Why It’s Important for Your Bank To Be Healthy
Broadly speaking, the health of the banks in the U.S. is an important factor in the overall health of the economy, which is one reason they’re monitored carefully. Credit ratings can also be an important measure of a bank’s health for both potential investors and consumers. For example, the safety of checking accounts is something to be aware of in one’s daily banking life.
However, it’s not the only thing that you should consider when opening up a new account. The interest rate a financial institution pays on deposits, how convenient the bank is, and its overall account features are probably more important for most people.
Because the United States government (through the Federal Reserve and FDIC) takes an active role in supervising the banking industry, most of the major banks you might consider are likely to be sufficiently healthy. However, you may want to delve in to make sure.
Checking Your Bank’s Rating
It’s important to feel confident that your money is secure with the bank you choose — nobody wants to put their money somewhere where it might not be safe. Fortunately, the U.S. government actively supervises banks for their safety and soundness and the possibility of credit risk.
Before opening up a checking account or savings account, you might want to check your bank’s credit worthiness rating. You can search for these at the Fitch Ratings website. However, government agencies such as the Federal Reserve and FDIC do not publish their ratings, and other rating agencies may limit access to their rating information to paid subscribers.
Bank FDIC Insurance
Bank ratings are important for transparency in the health of any one bank as well as providing insight into issues that need to be resolved. But it’s also important to know that most banks are insured by FDIC. Deposits at FDIC-insured banks are insured for up to $250,000 per depositor, per account ownership category (such as single, joint, or trust account), per insured institution. So unless you have more than that amount at any one bank, your money is guaranteed by the U.S. government in the very unlikely event that your bank fails.
What’s more, if you do have more than $250,000 to put in a bank, some financial institutions have extended insured deposit programs1. This allows them to insure a higher amount by partnering with other banks to hold your funds, with no single account topping the $250K figure.
Opening a Bank Account With SoFi
If you’re looking for a secure place to keep your money, see what SoFi offers.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
FAQ
What is a good health rating for a bank?
Different rating agencies have different scales for rating how safe and sound a bank is. The CAMELS ratings used by government agencies go from 1 (strong) to 5 (critically deficient), while Moody’s ratings go from Aaa at the top level to C at the low end.
How do you find out the rating of a bank?
You can check Fitch Ratings’ website to find out the creditworthiness rating of a bank, but otherwise, you may not be able to access this kind of data. The government agencies that evaluate banks do not make their ratings public, and some other private agencies may only publish their ratings to paid subscribers.
Who rates banks?
The FDIC and Federal Reserve are two government agencies that oversee financial regulations concerning banks and financial institutions. These agencies use the CAMELS ratings to help assess how secure and healthy banks in the United States are. Other credit agencies such as Standard & Poor’s, Fitch, and Moody’s also rate banks using their own proprietary rating systems.
Are CAMELS ratings public?
CAMELS ratings issued by the government are not public record. In fact, the CAMELS rating of any particular bank as well as its examination report may not be disclosed to unauthorized users. Other institutions may disclose or publicize their own bank ratings, which are often calculated based on data that is publicly available.
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1SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by banks in the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at SoFi.com/banking/fdic/terms. See list of participating banks at SoFi.com/banking/fdic/receivingbanks.
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SoFi members with direct deposit activity can earn 4.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
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