Ask Bankrate: Questions about bank safety, investing during a downturn and future mortgage rates

The first installment of our reader mailbag includes a range of questions related to managing money during the coronavirus crisis. Visit this page for more information on how to submit your question. Click on a question here to jump straight to it.

Questions:

• How do you know if your bank is safe?
• Are IRAs at a bank insured?
• Are online banks safe?
• Will mortgage rates track the 10-year Treasury?
• Should I get out of the stock market?
• Market correction in real estate prices?
• Should I move my IRA into cash?

Q1: How do you know if your bank is safe?

Should I be concerned about a potential run on banks by depositors?

— Ken K.

How do I know if my bank is solid?

— Christy

Can we trust these online or brick building banks to handle our money in these turbulent times? Banks may go bankrupt or take our money for themselves, right?

— RS Hansen

Answered by Amanda Dixon, senior banking reporter: “U.S. banks overall are in a much better position to weather potential storms than they were over a decade ago during the Great Recession. Banks these days have plenty of access to cash, so there’s no need to worry about a bank run.

The bank is still the safest place for your money, as long as your bank or credit union is a member of the Federal Deposit Insurance Corp. or the National Credit Union Administration. Up to $250,000 is automatically insured per depositor, per insured bank, per ownership category. As long as you have less than that amount in the bank, your money is protected no matter what. Since the FDIC was created, no one with insured funds has ever lost a single cent.”

Q2: Are IRAs at a bank insured?

Someone said IRA accounts inside our bank account are separate from the $250,000 that they are insured for. Can you clarify what accounts are included in the $250,000?

— Daemon

Is the IRA account separate from your cd accounts for the $250,000 insurance?

— Rlegeyt

Answered by Matthew Goldberg, banking reporter: “The FDIC insures your money for $250,000 per depositor, per insured bank for each account ownership category.

IRA CDs are in the certain retirement accounts category. This gives these accounts insurance limits separate from non-retirement bank accounts (such as your checking and savings accounts).

This retirement category has a coverage limit of $250,000. IRA CDs need to be within FDIC guidelines and limits at an FDIC-insured bank for coverage.

It’s important to note that the FDIC doesn’t insure non-deposit investment products, such as stocks, bonds and mutual funds, even if they are purchased at an FDIC-insured bank. So an IRA invested in these isn’t FDIC-insured.

The FDIC’s Electronic Deposit Insurance Estimator (EDIE) is a great resource.

Use EDIE or call 1-877-ASK-FDIC (1-877-275-3342) to confirm you’re covered. Always confirm your coverage with an FDIC resource.”

Q3: Are online banks safe?

I have a lot of my cash at my local community banks that pay close to what the online banks pay for money market savings accounts. I need to open another account up to the FDIC limit, but I am very hesitant about putting money into an online bank, especially ones with names that I am unfamiliar with, that I cannot physically see and touch. I am afraid that somehow, some way the bank will disappear, taking the money with it or me not being able to access it quickly. I am sure a lot of other people feel this way. Can you convince me otherwise?

— Stan W.

Answered by Mary Wisniewski, banking editor: “There is a lot to worry about these days — but not this. The FDIC insures your bank deposits.

While the online bank may not be a household name, rest assured: If you’re opening a deposit account at any FDIC-insured bank, your money is insured up to $250,000 per depositor, per bank. That’s true for banks with branches. That’s also true for online banks.

If the online bank failed, how quickly you can access your funds depends on how you define speed. According to the FDIC’s FAQ page, the government agency has historically paid insurance within a few days of a bank failing.

Again, you will get your money back. As the agency said in a written statement earlier this month: “Since 1933, no depositor has ever lost a penny of FDIC-insured funds.”

Any lingering doubts? Use the FDIC’s BankFind tool to confirm the online bank is FDIC-insured.”

Q4: Will mortgage rates track the 10-year Treasury?

Do you anticipate the 30 year mortgage rate to more closely track the 10-year Treasury rate, as it has in the past?

— Bob K.

Answered by Greg McBride, CFA, Bankrate chief financial analyst: “Eventually yes, we will see a normalization of the relationship between 10-year Treasury yields and 30-year fixed mortgage rates. The normal correlation of movement and spread between them gets disrupted amid turmoil in financial markets, as we’ve recently seen. Nervous investors dumped mortgage bonds, sometimes at discounted prices, which pushed those yields higher and meant higher – rather than lower – mortgage rates necessary to get investors to buy new mortgage bonds. At times, we saw mortgage rates rising even while Treasury yields were falling. The directional movement comes back into alignment first. But the wider spread between Treasury yields and mortgage bonds will likely persist for a while as the economy is in recession. The wider spread compensates investors for the higher risk of investing in mortgage bonds – prepayment risk as people refinance or liquidity risk in times of market disruption – relative to Treasuries. The Federal Reserve having stepped up with a blank check to buy mortgage-backed bonds goes a long way toward restoring the traditional relationship between Treasury yields and mortgage rates, but even that is not an overnight fix in such unprecedented times.”

Q5: Should I get out of the stock market?

Despite stock market swings does it make sense to get out of the stock market to preserve our savings?

— Fredcuda

Answered by James Royal, senior investing reporter: “The first question you want to consider is how long you have until you need the money. If it’s more than 10 years, then you’ll have a lot of time to let the market rebound. If you need the money in the next one or two years, then you might consider taking your lumps now. But that doesn’t mean you have to sell everything, only what you need in the near term. Otherwise, you’re probably better off sticking to your investments for the long term, though we could still have a lot of bumpy ride left.”

Q6: Market correction in real estate prices?

We recently moved to the Bay Area and have been waiting for a market correction to buy a home.  We’ve been toying with the idea to continue renting and buy investment properties out of state to make our money stretch further. I’ve read a lot about places that likely will see a correction, but none have the highly competitive and expensive Bay Area viewpoint on what we can expect.

— Shauna D.

Answered by Natalie Campisi, senior mortgage reporter: “This is a question many people in expensive metros ask themselves. Most experts advise new real estate investors to buy in places they’re familiar with and have easy access to or trust people that can manage the property. Some key stats you’ll want to look at are metro-specific employment numbers, rental costs, property taxes, insurance costs and how much value has increased year over year. It’s also a good idea to talk to other investors in that area to get a sense of the market.”

Q7: Should I move my IRA into cash?

I’m 74 and have lost $200K in my IRA. Is it time to get out now and sell everything for cash?

— William G.

Answered by James Royal, senior investing reporter: “How much do you depend on the money in your account to find your living expenses? Would you be able or willing to eke by without this money in order to give it a chance to rebound? If you need the money in the next one or two years, then you might consider taking your lumps now. But that doesn’t mean you have to sell everything, only what you need in the near term. Otherwise, you’re probably better off sticking to your investments for the long term, though we could still have a lot of bumpy ride left.”