Dateline: Belgrade, Serbia
If you’re coming from a country like Germany, Singapore, or the Netherlands, frankly, you might be disappointed in the safety of the US banking system.
There’s a misguided assumption that banking in the US must be safe. It is the world largest economy, right? But the 2008 financial crisis showed that impression is not necessarily accurate. In fact, the US has had more bank failures than almost any other developed country in the world.
During the financial crisis, the Federal Deposit Insurance Corporation (FDIC) reported an average of 100 bank failures a year between 2008 and 2012.
At the height of the recession, US banks were the 40th safest in the world and, honestly, haven’t recovered as well as you would expect. In the Global Finance “World’s Safest Banks 2017” list, no American bank appears until #33 out of only fifty.
This is exactly why we speak so frequently about the concept of legal offshore banking.
It’s sad to say, but this was an improved performance for banks headquartered in the United States over previous years. In 2017, the FDIC only reported eight bank failures, and zero have been reported so far in 2018. However, only one of the major US banks you might initially think of appears on the Global Finance list.
Still, there are plenty of reasons why you may choose to hold your money in a US bank. At Nomad Capitalist, we frequently help people who own multinational businesses that necessitate a US bank account. Expanding an e-commerce project to the US or opening a store on Amazon are just a two of the reasons you may need to open a US bank account.
If you’re a Nomad Capitalist about to travel long term, you might be looking for a safe place to park your money while you’re out of the country. While traveling, you don’t want to be concerned about the financial system and the safety of your money, so picking a stable bank is key. You’ll also need a bank that can easily wire transfer money to international bank accounts, making choosing a bank before you leave even more complicated.
In a moment, I’ll share the five safest banks in the United States as reported by experts, but first, a few definitions.
What Do We Mean By Safe?
When compiling this list, we analyzed a number of different factors and reports from third party institutions.
In the US, one of the first things you want to make sure of is that a bank is FDIC insured. This is insurance from the federal government that protects depositors. If the bank goes under while you have money in an account, the US government will insure up to $250,000.
Most, but not all, banks are FDIC insured. If you’re looking to put more than the FDIC covered amount into an American bank account, you’re going to have to open accounts with multiple banks to ensure all of your money is protected. And yes, FDIC covers non-citizens and even non-residents. Of course, it’s better to avoid this possibility altogether by choosing the safest bank in the first place.
Data on bank safety is not widely available in the US. If you call a bank and start asking questions, they’ll probably get suspicious and tell you they can only give out information to customers. Turning to international organizations for information and crunching your own numbers can help you make an educated decision on where to keep your money.
Global Finance’s list of safest banks in the world is one of the easiest tools for Nomad Capitalists to analyze. One factor Global Finance takes into account when calculating their list of safest banks is asset size. Banks with larger assets are generally able to recover from losses on defaulted loans more easily.
“Too Big To Fail”
Applying this principle, people have assumed that the largest banks were “too big to fail.” The financial crisis showed that wasn’t necessarily true, although in the US, the biggest banks were bailed out by the government.
Dividing a bank’s bad assets by the assets available to compensate for the losses, called the Texas ratio, is a quick and easy way to analyze a bank’s safety yourself. The lower the ratio, the safer the bank is for holding your money.
The International Monetary Fund, or IMF – not exactly my favorite people – uses three main factors to determine a bank’s vulnerability:
- A large proportion of short-term funding (i.e. checking accounts) when compared to total deposits
- “A low ratio of cash to assets”
- “A low ratio of capital to assets”
The IMF considers a large proportion of short-term funding to be dangerous because short-term funding can easily be recalled by customers. If news has broken that a bank is facing financial difficulties, often a rush of customers will immediately want to withdraw their funds. Since short-term funding is used to finance long-term loans, which cannot be quickly converted to cash, such a situation can put a bank into dire straits.
Global Finance also takes into account the foreign currency deposit ratings issued by the three major credit rating agencies. Foreign currency ratings analyze a bank’s ability to meet financial obligations denominated in foreign currency. This metric is important because it considers the probability of the government imposing restrictions on currency conversions and the transferring of funds in a foreign currency. As a Nomad Capitalist, you’re going to want to pay close attention to a bank’s foreign currency deposit rating.
On a practical note, while traveling, you may end up using suspect wifi and ATMs, putting you at risk for fraud, as well as credit card and identity theft. In some parts of the world, armed robbery is a distinct possibility. When deciding where to keep your money, make sure the bank has an excellent fraud alert system and will cover your losses if your card is lost, stolen, of cloned.
Credit Unions vs. Banks
Credit unions can sometimes be a safer option, while offering higher interests rates on deposits, more affordable loans, and better customers service. Credit unions may have plenty of benefits, but they are not always as accommodating to internationals because they tend to provide highly localized services.
For example, some credit unions don’t even have the capability to wire money internationally. If you’re moving to the US and looking for a safe place to host your money, a credit union can be a good option, but if you’re a full time traveler, a small credit union might not be practical.
Like with banks, up to $250,000 in an account with an insured credit union is covered by the federal government. Credit unions are insured by National Credit Union Administration (NCUA), rather than the FDIC.
Banking for Nomads
After moving abroad, one of the first things I learned was that dealing with my bank at home was going to be a nightmare. After just two weeks out of the country, fraudulent charges appeared on my card. Dealing with my bank’s customer service was almost as bad as going to the DMV and it took over two weeks before my new card arrived. Paying my bills became an ongoing stress.
If you’re planning on leaving your money in a US bank while you travel or live internationally, you have to consider how your lifestyle change will also change your banking needs. Choosing a bank not well suited for nomads can add a number of perils and annoyances to your daily life.
A few things to consider when choosing a US bank, besides safety:
- International wire transfers
- Ability to report fraud online
- 24/7 customer service
- Online Banking
Many new nomads don’t bother to do research on the most international-friendly and secure banks before leaving the country and end up suffering the consequences sooner or later.
The Five Safest Banks in the US
Here are the five safest banks according to the experts:
Unless you’re a large scale farmer, rancher, or otherwise involved in agribusiness, Agribank is not for you. Agribank is a part of the US Farm Credit System and only acts as a wholesale lender. In 2017, Agribank held assets worth nearly $105 billion.
Agribank exclusively serves the 15 Midwestern states. Because of the highly localized nature of their business, they do not provide international transfers. Fraud can’t be easily reported and Agribank does not offer a 24/7 helpline or online platform.
US Bancorp is the parent company of US Bank, the 5th largest bank in the US, with $462 billion in assets. In Kiplinger’s 2017 of list of the best banks in the US, US Bank tied for first place with Canadian-owned TD Bank. US Bank has 3,238 branches, mostly located in the Midwest. There are also 666 branches in California.
In addition to being one of the safer banks in the United States, US Bank also offers services that make international banking safer and easier. A lost or stolen card and suspicious activity can be reported through US Bank’s helpline or online banking platform. Since there may be times when you don’t have access to cell service while abroad, being able to report fraud through the online banking platform is a helpful tool not all banks offer.
With US Bank, you can transfer money within the US via Zelle at no additional cost. For international transfers, you can wire money 24/7 through US Bank’s partnership with Western Union.
Despite being larger and more friendly for nomad capitalists, US Bank does not take the number one position on this list. This is due, in part, to recent legal troubles. In February 2018, US Bank paid $613 million in fines to the US Department of Justice for neglecting anti-money laundering rules.
CoBank is also part of the US Farm Credit System. As an agricultural credit bank, CoBank provides direct retail and wholesale loans to farmers and those involved in agribusiness in 23 states. As of 2015, CoBank held assets totalling $117 billion.
Fraud can only be reported via a telephone hotline, but they do not provide a 24/7 hotline service, which will complicate working with your bank when you’re in a different timezone. CoBank does offer international wire transfers, but they are certainly not the most friendly bank for international travelers.
AgFirst is yet another farm credit bank. Like Agribank, AgFirst is a wholesale only lender, reporting assets of $30 billion in 2017. Like most farm credit banks, the operations of AgFirst are highly localized, only serving 18 Eastern states and Puerto Rico, while not providing many of the services needed for nomads. AgFirst does provide an online banking platform for managing loans through your computer, tablet, or smartphone.
AgFirst places a firm emphasis on cybersecurity, adhering to NIST 800-171r1 cybersecurity standards and utilizing a multifaceted defense strategy for protecting information.
Farm Credit Bank of Texas
Like Agribank, Farm Credit Bank of Texas (FCBT) is a wholesale lender serving the agribusiness industry. FCBT is a smaller, local bank holding $22.8 billion in total assets. It serves large, complex agribusiness operations, related mostly to food and rural utility, so not exactly the right choice for nomad capitalists.
US Banks: Don’t Trust Them Blindly
After analyzing the data on bank safety in the US, two things become pretty clear.
For one, there’s a woeful lack of information on bank safety available to the public, which is probably why people tend to choose the largest banks, rather than the safest. Customers are then shocked when those institutions that seem “too big to fail” face financial difficulties or even have to close their doors.
Second, most of the banks that made this list were pretty small or localized, not exactly the best options for Nomad Capitalists or digital nomads.
Don’t fall into the trap of trusting a bank just because of its size; the recession taught us better than that.
Before you open a bank account in the US, do your due diligence to find the safest option for you and spread out your funds between different banks if need be. Or, look beyond American shores for good offshore banks.
Choosing a smaller, safer bank or credit union can be OK in some circumstances; just make sure they’re equipped to deal with international travel and not going to slam you with ridiculous fees for international transfers. Otherwise, considering your international lifestyle and the lack of large scale, safe banks in the US, focus exclusively on offshore banking.