Many banks offer investment services to their clients in addition to more common consumer banking services. These internal investment services may primarily be geared towards high-net-worth individuals. If you are just starting out with investing, your bank may not reach out to offer these services, but you may still be able to take advantage of them.
Are investments covered by the FDIC?
The investment services and accounts offered by the bank are not insured by the FDIC, as the FDIC only guarantees the deposit accounts you have at the bank. Due to the fluctuating nature of the stock market, the FDIC does not insure your invested money.
However, you can still use your bank for investing. Your money is not guaranteed against market losses when invested, regardless of the investment company you choose.
Fortunately, your investment funds are protected unless the bank engages in fraud or goes bankrupt. The Securities Investor Protection Corporation (SIPC) will step in to provide a safety net in the event of problems with your bank. Your protection under SIPC is similar to FDIC insurance coverage in that you will receive coverage of up to $250,000 for cash in your investment account. The total coverage provided by the SIPC, including the $250,000 cash coverage, is $500,000 per customer for all accounts held with any bank or broker. This can help you feel secure about investing instead of keeping your money in a savings account, earning minimal interest.
How do investment services work?
Investment services through your bank are likely to be similar to what you would receive from an investment company.
The key is to find a financial planner or advisor that you feel comfortable working with. Your financial advisor should be willing to answer any questions you have about the products you are purchasing. If they are unwilling or unable to answer all your questions regarding the available products and how they fit into your overall investment plan, consider choosing another advisor.
Choosing the right investment service and financial advisor
Finding a financial planner is an important process and you should consider multiple candidates, in addition to those at your bank, before selecting the right one for you. Additionally, you may want to know the policy if your financial planner changes companies.
If you are working with an advisor at your bank and they leave, will your account be assigned to a different advisor? And if you want to stay with the bank or firm, will you be able to choose your new advisor or will you have to stay with whoever is assigned to you?
Simply put, a financial planner is someone you can turn to for investment advice and continuity is an important part of managing your money.
When looking for a financial planner, ask about the services offered through your bank, interview planners, and then make your decision. While you shouldn’t choose your financial planner just because they work at your bank, that option shouldn’t be ruled out until you do some investigation to determine if it offers you any advantages over going with a separate company.
Learn the basics of the stock market first
If you know nothing about investing or the stock market, consult a financial advisor who understands the markets and available products. Mutual funds mitigate general investment risks because they spread out across stocks of many different companies rather than just one. Individual stocks you purchase have higher risks because if the company fails, the stocks can become nearly worthless very quickly, which can deal a devastating blow to your portfolio. In short, make sure you are prepared to invest and know what you are buying before you jump in.
You should
Investing money should be done with funds that you do not need for living expenses or upcoming large expenses. Do not borrow from your savings every month if you are investing money, and ensure that your budget allows enough flexibility to protect your savings and investment accounts while meeting all your regular financial obligations.
Frequently Asked Questions (FAQs)
How does automatic investing work with banks?
Automatic investing, also known as using a “robo-advisor,” is a popular option for people who want a hassle-free way to save. These accounts enter basic personal information into an algorithm that invests and balances your investment funds over time. There are many apps and services that offer automatic investing, but many traditional banks also offer this service. You may be able to find a robo-advisor through your current bank.
How can I get help from the bank to invest in real estate?
You can obtain a mortgage loan from the bank to help you invest in real estate, just as you would for your primary residence. However, the requirements for getting a loan for real estate investment are often stricter than when buying a property you intend to live in. You may be asked for a larger down payment, to show a stronger credit score, or to have a lower debt-to-income ratio.
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Sources:
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and maintain the accuracy, reliability, and quality of our content.
Federal Deposit Insurance Corporation. “What is Covered.”
Securities Investor Protection Corporation. “What SIPC Protects.”
Investor.gov. “Mutual Funds.”
Source: https://www.thebalancemoney.com/should-i-use-the-investment-services-at-my-bank-2385795
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