How to know if a new bank is safe

How to know a new bank is safeLast month, Grandpoint Bank opened up in Los Angeles. Haven't heard of it? Don't worry -- just about nobody has. When it opened late last month, it was a brand-spanking new bank.

Well, basically new. It used to be the Santa Ana Business Bank, purchased last January by a company called Grandpoint Capital Inc., and now the bank is Grandpoint Bank. At least the name is new, at any rate.

But that got us to wondering: In the unlikely event that you find a new bank in your neighborhood -- or a practically new, or even new to you bank -- what should you do to make sure that bank is safe for you to put your money in?

I approached a few prominent banking experts to get their tips, and here's what they had to say:

If a bank is new, it's probably the safest bank out there. Derek Cunningham, managing director of Commerce Street Capital's bank development team, noted that if a new bank comes into being, it's done so after jumping over so many hurdles that you can be assured it's safe. "Of the 15 to 20 banks that opened in 2009," says Cunningham, "it literally took an act of Congress, prayers, luck, and the perfect board and CEO to get a charter last year."

Kevin Ahern, CEO and president of CIC Bancshares Inc., a newly-formed bank holding company based out of Colorado, concurs, saying, "It's very difficult for new banks to receive approvals in the current market, so if the founding group's been approved, they have been vetted extensively by federal and state banking officials, which should give potential customers comfort."

In fact, Ahern adds, "A new bank in the current market doesn't have the legacy loan portfolio problems that many existing banks have. Therefore, a new bank is likely more healthy than many of its competitors in a local area and is more likely to be originating new consumer and business loans."

Make sure the bank is FDIC-insured. This is important because if your new bank would somehow fail, you won't lose your money. Being FDIC insured means that the government will reimburse you any money you had at the bank (up to $250,000 per account). James Heal, a financial expert with the answer service, JustAnswer.com, says, "I don't know of any bank today that wouldn't be FDIC insured, but double check the FDIC sticker on the bank's door and ask the bank associate just to make sure."

Do your research. If it's new and you know nothing about it, that's where Google can come in handy, just to see what comes up when you search. Even if it's a new bank, it's likely that some sort of information will be out there, such as newspaper articles mentioning the opening of the bank. Or if you're able to find out the name of the owners or the bank holding company that owns the bank, you'll at least be able to track down some biographical information on the owner or the holding company. None of this may tell you much about the new bank itself, but if you find absolutely nothing except, say, the bank's website, you might want to think twice about depositing your money with them. You probably don't need me telling you that, but it bears mentioning.

The FDIC web site is a good place to start your search because it's full of every bit of information you'd want to know about banks across America. Particularly handy is the site's web tool, Bank Find. That said, when I search the database, I couldn't find Grandpoint Bank, the new bank in Los Angeles, although I was able to locate the old bank that it replaced, Santa Ana Business Bank. So the FDIC site, while extremely useful, isn't completely up to date.

Start small. If you're a bit nervous about depositing your hard-earned cash in an unknown bank, Richard Barrington, a CFA and spokesman with MoneyRates.com, points out that you could put a small amount into an account and get to know the bank first. "You may be well served to ease into the new relationship rather than plunging in with a large portion of your assets," says Barrington.

Make sure it's got more to offer than your old bank. Just why are you switching to this new bank? It's going to be better than your old bank, right? If not, why are you even giving them a second glance? "Make it worth your while," advises Barrington. "There's an old saying that pioneers are the people with arrows in their backs. In other words, it doesn't always pay to be first. If you're going to be an early adopter of a new bank, make sure it's because they offer terms that are clearly better than you can find elsewhere, such as higher savings account rates, money market rates or CD rates, free checking, free and convenient access to ATMs and so on."

Finally, just use your common sense. While the experts say that a new bank might be safer than your old bank, if you sense danger ahead, then stay put.

Geoff Williams is a regular contributor to WalletPop. He is also the co-author of the book Living Well with Bad Credit.

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Thanks for all the great advice. I haven't ever really put thought into what bank I use. It's better to be safe than sorry though.

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