Are Online Banks Safe?

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That's 800-525-7000. This is faith and finance biblical wisdom for your financial decisions. So a few years ago when online banks were first coming well online, we got a lot of calls from folks wondering if they were safe. Now it seems we're getting that call volume again with folks wondering if putting their money in an online bank is a prudent thing to do, possibly as a result of a few bank failures this past spring. Banking is perhaps the most heavily regulated industry in the US, but it isn't foolproof.

Managers are human and humans make mistakes. There will always be bank failures, but the system we have in place makes bank closures rare and isolated. Now, if you're concerned about putting money in a bank that has no branches, no actual buildings that you can physically walk into, you should know that there's actually very little difference between a so-called brick and mortar bank with branches and an online bank that exists only in cyberspace. In fact, to most customers of brick and mortar banks, there's no difference at all because they never go into a bank branch these days. That was a trend already well underway when covid hit, forcing many banks to close branches to walk in traffic.

Since you can deposit a check with a smartphone, now many people have little need to actually go to a bank. Banks, of course, have noticed this, and they've been closing branches right and left the past few years. In 2020, there were about 90,000 brick and mortar bank branches in the US.

By 2022, that number had fallen to just over 70,000. Banks need fewer branches these days because they're now offering all or most of their services online as well. People want in-person banking, the ability to sit down with a loan officer face-to-face, for example. But it seems a lot more people are content to do their banking completely online, often with just a smartphone. But if folks can have that same cyber experience with a brick and mortar bank, why are so many people flocking to online banks and leaving brick and mortar behind?

Well, it's simply a matter of interest. Online banks have significantly higher yielding rates, and lower fees than traditional banks. That's because they don't have the overhead costs of maintaining dozens or even hundreds of brick and mortar branches. Still, to some people, the idea of not being able to physically go to a bank branch and take their money out is worrisome. Just how safe are online banks? Well, the answer is every bit as safe as brick and mortar banks and credit unions, as long as they're federally insured. The Federal Deposit Insurance Corporation, or FDIC, ensures deposits at federally insured banks. The National Credit Union Administration ensures deposits at federally insured credit unions.

In both cases, that coverage is a maximum of $250,000 per person, per institution. So, an online bank has the same insurance coverage as a brick and mortar bank, and a bank bank that has the same insurance coverage as a bank bank. As long as it's FDIC insured. And you can check on that. Go to FDIC.gov and use their bank find feature. Or visit NCUA.gov and use their research a credit union tool to verify if an institution is federally insured.

But you'll probably have a difficult time finding one that isn't. Now, what about cybersecurity, you ask? Well, if everything is done online, doesn't that make your account more vulnerable to hackers and thieves? Well, all banks, as well as online vendors, have a vested interest in preventing that. They use data encryption technologies such as two-factor or biometric authentication, electronic signature verification, and continuous account monitoring. But customers have to do their part to maintain cybersecurity too, and that's whether they use an online or a brick and mortar bank. That starts with having a secure internet connection and a strong password. Never use public Wi-Fi to access any of your accounts, either financing or shopping. That person sitting next to you in the coffee shop could be waiting for a chance to hack into your account and clean you out. So to recap the question, are online banks safe?

The answer, as long as they're federally insured, they're every bit as safe as brick and mortar. All right, your calls are next, 800-525-7000. We'll be right back. Are you searching for a way to become a better, faithful steward of the resources that God has given you? Well, download the FaithFi app and join the 37,000 others who are already using our app. The FaithFi app will provide you with wisdom, community, and simply help you stay on track with your finances. We have three money management options to choose from, so find an option that fits your unique needs.

It's available on desktop or mobile. Simply go to faithfi.com and click app to get started. Welcome back to Faith and Finance. I'm your host, Rob West.

The number to call is 800-525-7000. I'm looking forward to hearing from you as we take your calls and questions from across the country. In fact, let's head out to Naperville. Hi, Vicki, go ahead. Hi. Thanks, Rob.

I have a question. I got an inheritance from my father, and we have about $150,000 to invest, and so we're not sure what to do with it. Somebody mentioned to me investing in a contract with livestock, and so I'm wondering if you've heard of this. It's a guaranteed return, and what your thoughts are about it. We do have an emergency fund. Both of us are working. We plan to retire in the next four years or so, so we don't need the money now, but we want to be wise with it, and I'm wondering what your thoughts are.

We still owe about $170,000 on our house, and our emergency fund is about $60,000, but we have my father's inheritance in there right now because it's failing May, and we can transfer it quickly. Okay. All right.

Very good. So how much is the inheritance that you're receiving? We have about $150,000 to invest. Okay, and what are your main goals with this money?

As you just kind of look at your overall financial life, what is it that you really want to accomplish with it? Great question. We don't need the money now, so we would like to put it in a place where it could make the most yield. Okay. All right. And what would you think would be the time horizon on that? I would say probably five years, four or five years when we retire probably. Okay. And at that point, might you want to use the full amount to, let's say, retire the mortgage or do something else with it, or do you see this money just being money you'd continue to grow and tap much further down the road?

Yeah, I would say probably continue to grow. Okay. And do you have an advisor that you use to manage any other investments? Yes, Raymond James.

Okay, very good. I would probably just have that advisor bring these investable assets in as a part of your overall investment strategy. And if you needed to carve this out for some other purpose other than just kind of being involved in your full investment plan for retirement, then he could or she could approach it a little bit differently. But if you really, you know, you don't have any specific purpose for it, you're not looking to retire debt with it, you've got your 401k, then it really just becomes a part of the overall assets that you have.

And, you know, he's already managing those. And I wouldn't see why you just wouldn't roll this into that in terms of being invested in the same way that the rest of it is. Okay, thank you.

Have you heard of investing in livestock contracts? You know, I'm familiar with the concept, but I would certainly not be someone to weigh in on, you know, the viability of that, especially at this point in time, I just don't have a working knowledge of whether, you know, that would be a good thing or a bad at this, you know, during this time, so I would find somebody who's a lot more specialized in their knowledge of that area for sure. Hmm, okay.

I'm not sure who that would be, but okay. Yeah, perhaps your advisor could help you locate somebody who has maybe a more specialized knowledge in that area. But unfortunately, I do not. But I'm delighted to hear that you're thinking strategically about how to handle this money and certainly appreciate you checking in with us today. May the Lord bless you, Vicki. And if we can help further along the way, don't hesitate to reach out.

800-525-7000 is the number to call to Illinois. Hi, Jan. Go right ahead. Hi, I am a Christian. I am 76 years old.

I support my local church and other Christian ministries. I built a house with one of my daughters and her husband after my husband passed away, and I own half and they own the other half. I have another daughter. When I pass, my daughters will each get half of my half.

There is a discrepancy, however. One daughter says that half should be of the price we initially paid. I say it should be of the amount the house is worth at my passing, which will probably be much more.

Hmm, yeah. So you would always want to consult with an attorney just to figure out exactly how this will be handled at your death. And you could certainly consult with the CPA as well.

But here's what I would say. The portion that's owned currently through either Tenants in Common would probably be the way that it's done, where you have each person owning 50%. Obviously, the value of that 50% is the market value at any given time. So when that asset is sold at any point, whether that's before or after your death, then that 50% that she owns, your daughter, would be worth whatever the market value is. In terms of the amount that would be received as an inheritance, again, at your death, the market value of that property would then be split among whoever your beneficiaries are. Those who are going to receive your assets according to your will. So all of that would happen as of the date of death. And then at that point, you know, each person who inherits that property, the decision could be made for that property to be held and continue to appreciate. Or it could be sold and they would be paid out of the proceeds of the sale of the property based on their percentage of ownership. So it's really all based on the market value. Is she asking that question to determine any taxes that might be due or is she trying to determine something else? No, not really what the taxes, no. No, just at the time of my death, how should we debate that?

I see. Yeah, and so at your death, the asset is worth whatever the market will bear at that time. And then each person would be entitled, let's say it was sold immediately after your death, they would be entitled to the percentage that's spelled out in your will. Or if this property is in a trust, it would be handled that way. And basically your will would say, okay, if your portion is worth 50%, then the market value as of your date of death, 50% of that market value would then be divided among your heirs that are named in your will to receive your portion of the property.

And that would be not the original purchase price value, it would be the value as of the market value as of the date of your death that they would be entitled to. Okay, that's what I thought. Thank you for clarifying that for me. I really appreciate it. Happy to do it, Jan. Thanks for calling and being on the program today. We appreciate it very much. Quickly to what will stay in Illinois to Glenview. Hi, Karen, go ahead.

Hi, Rob. Thank you so much for taking my call. I have two questions. The first one is, I've already maxed my I-bond for this next year, and I did one previously last year, but what I understand is I received a $3,600 refund from the federal government. And I thought I heard you say that you can add that to your I-bond even though you've met the maximum $10,000 for the year, but I'm not sure if that's true. It is, but it would have had to go directly into the I-bond as a part of your refund. You don't receive it and then turn around. You would actually fill out form 8888 and allow that to be designated into the I-bonds, and that would allow you to purchase an additional $5,000 over and above the $10,000 that you already put in.

Given that you haven't done that or you didn't designate that, it wouldn't be able to be done at this point, but I'm not disappointed about that because I think the I-bonds are not nearly as attractive now as they were a few months ago. I know you have a part two, so stay on the line. We're going to take a break, but we'll be right back with your additional question. We're grateful for support from Eventide Investments on the faith and finance program. Eventide's approach to values-based investing is grounded in the belief that humankind was created in the image of God with intrinsic dignity, value, and worth. Eventide calls this investing that makes the world rejoice. More information is available at eventideinvestments.com.

That's eventideinvestments.com. We are grateful for support from Soundmind Investing in the faith and finance program. If you have money in a retirement account or just a general investing account, you know the stock market can sometimes seem like a roller coaster.

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Soundmindinvesting.org. Well, it's great to have you with us today on faith and finance. I'm Rob West. We're taking your calls and questions today on anything financial. We've got some lines open.

We'd love to hear from you. 1-800-525-7000. Again, 800-525-7000. Give us a call.

Back to Glenview, Illinois. Just before the break, we were talking to Karen about her iBond account. She was asking about the ability to fund beyond the 10,000 annual maximum. What I had shared, Karen, was that you have to do that directly from your tax refund.

You can't receive it and then put it in. It would have had to be designated on a special form that you wanted it to go straight into an iBond account. Although I'm not disappointed if you didn't take advantage of that simply because with the current rate down lower than it has been previously, they're not as attractive right now. At 4.3%, you can do better in, let's say, a 10-month or a 12-month CD. You could get over 5% right now.

I think the iBond composite rate will continue to fall as the consumer price index falls. Therefore, it's probably not a bad thing that you didn't add to it. Give me your thoughts on that and then I know you had a second question.

I agree with you. Thank you so much for your input on whether or not, even if I could add to the iBond, I should. I looked on the bank rate site and I did find I have my investment at Goldman Sachs and I did see both Marcus and Forebright are paying $5.20 and Marcus is paying 5% on CDs.

I guess these one is a one-year, one is a nine-month. I wanted to ask your opinion on that if you think that's the better way to go. I like a CD option a lot. We have very attractive rates right now. The only downside is you're not going to get a long-term return on that. You're probably talking a year and at that point, if rates are coming down, those very attractive rates won't be more as readily available.

If you want a longer-term play, you may want to look at a bond portfolio or a bond portfolio with maybe a smaller allocation to stocks. That is going to introduce more risk into the equation, but it has greater long-term growth potential. Whereas the CD is paying a very attractive rate right now with no risk, its ultimate safety with the backing of the US government and the FDIC insurance, but it's temporary and probably won't be around in the years following this as you try to roll it over year after year. That would be the only consideration, but I like really any bank that has FDIC insurance would be fine as long as it's one of the larger ones. Okay, but you're right about it might be better just to put it in with the rest of the investment instead of parceling it out in the CD.

Yeah, I think that's right. Unless there was some reason to do it, you needed more ready access to it. If you needed the money in, let's say, three years or less, then absolutely, that would be the way to go.

But if it's money you just don't see yourself needing any time soon and you can have a five or better yet, a ten-year time horizon on it, then I think taking advantage of these attractive stock prices, but even more importantly, if you want to be more conservative, the bond prices where the bonds are actually going to increase, the bond prices will go up as the interest rates fall, and we know they will at some point either later this year or next, and you're going to be able to take advantage of those higher yields. That to me is a better long-term strategy, whether you do that yourself or you have an advisor help you with it. Thank you. Thank you so much. And for an advisor, you recommend going to the Kingdom Advisor site?

That's right. Or you could just head to our website at faithfi.com. That's faithfi.com. And then just click on the top of the page that says Find a CKA.

And Certified Kingdom Advisor is the designation we trust for men and women who have met high standards and character and competence and integrity, but also they've been trained to bring a biblical worldview of financial decision-making. Thank you so much for your help. You're welcome, Karen. God bless you.

To Grand Rapids. Hey, Jonathan. Go ahead, sir. Hi, Rob. This is Jonathan.

I have a question. So my girlfriend has been renting for a few years now, and so she's in her career. She's been in her career for two years. I'm a student.

I'm born into my sophomore year. She is sick of renting, so she's had a thought cross her mind. Would it be cheaper to buy a house in the hopes to sell it or to keep renting? And she's like, this is like for like four or five years, and she's just trying to figure out what would be the best financial decision. Yeah. So she really wants the opportunity to be able to sell this home in as soon as four years. Is that what I'm hearing? Yes.

Yeah. I would probably say not to buy at that point. You know, typically three to five years would be a fine time horizon in a typical market. I think in this kind of market that we're in right now, five to seven years is really more likely in terms of you needing to be able to hold it for that period of time to be able to get your money back. The challenge is buying and selling real estate is very costly. The transaction costs, the taxes involved, you know, you've got to have a title insurance policy.

So there are costs involved and they can be significant. And in light of that, especially given where we are right now, with the housing market still being very high and we don't see it growing tremendously more. But I also don't see it declining because even though we have higher interest rates in a looming recession, we still have a lack of inventory nationally. We don't have enough homes in this country for all the people looking for them, namely the millennials that are buying single family homes and those moving out of densely populated urban areas to suburban areas.

They're now working remotely. And as a result, we just need more homes, probably two to three million in this country. And so in light of that, I think prices will stay elevated, but they could dip slightly. And so if she needed to get out of it in three or four years, she may find a situation where she's actually selling it at a loss. When you factor in all the costs involved, the buying and selling the property on the front end and the back end. And so I think for that reason, just given her time horizon, I'd probably continue to rent if it were me.

Okay. And instead, so if she did decide to go buy a house, she would say at least hold on to that house for five to seven years, right? That would be ideal just given where housing prices are. Would she need to borrow, take out a mortgage in order to do this? Yes. I'm not sure if her finances.

Yeah. So that's the only other consideration is just given where rates are right now, a year from now, she may be in a better spot with interest rates a little bit lower. So that would be the other thing is to consider delaying this purchase until interest rates come back down.

But I think the bottom line is if she's got a and we never know right what the Lord has in store. And so she may need to sell sooner. But if she thinks she could stay for five to seven years and she's got at least 20 percent for the down payment. And the the debt service on it, the mortgage, including the taxes and insurance were no more than 25 percent of her take home pay, then it's certainly something she could consider at that point. I think she just needs to be careful, recognizing her window is a little bit shorter than I would typically like it.

And there are significant costs to both buy and sell. And she needs to factor that in as she thinks about it. I hope that's helpful to you, Jonathan.

You sound like a great boyfriend helping her think through this right now. And thanks for being on the program today. Well, that does it for us today. I'm Rob West. Thanks to our amazing production team and to you for listening. I hope you'll join us again next time right here on Faith and Finance. Faith and Finance is provided by Faith Buy and listeners like you.