Should I Use the Investment Services at My Bank?
Many banks offer investment services to their customers in addition to other, more standard consumer banking services. These in-house investment services may be primarily targeted at high-net-worth individuals. If you are just starting to invest, your bank may not contact you to offer these services, but you may still be able to take advantage of them.
What exactly are these investment services? They are similar to the those a financial planner or financial adviser would provide. Depending on your accounts and the bank’s policies, you may pay an hourly rate for these services.
However, some financial advisers work on commission, so be sure to take that into consideration when they recommend products and services to you. Your bank may also offer these services to you without a fee, which means that the financial planner isn’t working on commission.
Are Investments Covered by the FDIC?
The investment services and accounts offered through your bank are not insured through the FDIC, as the FDIC only guarantees deposit accounts you have with the bank. Due to the fluctuating nature of the stock market, the FDIC does not guarantee your invested funds.
However, you can still use your bank to invest. Your money is not guaranteed against market losses when you invest it, regardless of which investment firm you choose.
Fortunately, your investment funds are still protected if the bank experiences fraud or falls into bankruptcy. The Securities Investor Protection Corp. (SIPC) will step in to provide a safety net in case your bank becomes troubled. Just like the FDIC, though, the SIPC won't cover you if you lose money because of a drop in the market value of your investments.
Your protection under SIPC is similar to FDIC insurance coverage, in that you'll have $250,000 of coverage for cash in your investment account. The total amount of coverage SIPC provides, including the $250,000 cash coverage, is $500,000 per customer, for all of the accounts that you hold at any one bank or brokerage. This can help you feel safer about investing instead of just keeping your funds in a savings account, earning minimal interest.
How Do Investment Services Work?
The investment services through your bank will likely be comparable to what you would receive through an investment firm.
The key is finding a financial planner or adviser with whom you are comfortable working. Your financial adviser should be willing to answer any questions you have about the products you are purchasing. If he is unwilling or unable to answer all of your questions about the available products and how they might fit into your overall investment plan, consider choosing another adviser.
Choosing the Right Investment Service and Financial Planner
Finding a financial planner is an important process, and you should look at several different candidates, in addition to those at your bank, before choosing the right one for you. Additionally, you may want to find out the policy if your financial planner changes companies.
If you work with an adviser at your bank and she leaves, will your account be assigned to a different planner? And if you want to stay with the bank or firm, will you be able to choose your new planner or will you need to stay with whoever they assign to you?
Putting it simply, a financial planner is someone you can turn to for investment advice, and consistency is an important part of managing your money.
When you are looking for a financial planner, ask about services offered through your bank, interview the planners, and then make your decision. While you should not choose your financial planner just because he works at your bank, don't rule that option out either until you've done some investigating to see if it offers you any advantages over going with a separate firm.
Learn Stock Market Basics First
If you know nothing about investing or the stock market, get advice from a financial planner who understands the markets and products available. Mutual funds reduce your overall investment risk because they spread risk over the stock of several different companies instead of just one. Any individual stocks you purchase have a greater risk, because if the company fails, the stocks could become almost worthless very quickly, dealing a devastating blow to your portfolio. In short, be sure you are ready to invest and know what you are buying before you jump in.
The money you invest should be money that you do not need to use for living costs or to pay for an upcoming big expense. Don't dip into your savings each month if you are investing the money, and make sure your budget allows enough wiggle room to protect your savings and investment accounts while still meeting all of your regular financial obligations.