BestCashCow released its list of the Top 10 Safest States to Bank. The list, compiled from FDIC data ranks the ability of banks in each state to absorb delinquent loans using a metric called the Texas Ratio. History has shown that banks with high Texas ratios are more likely to close. The states below have, on average, the banks with the lowest Texas ratios.

The Top 10 Safest States to Bank Are:

1. Alaska
2. Nebraska
3. North Dakota
4. Massachusetts
5. New Hampshire
6. Iowa
7. Rhode Island
8. Vermont
9. Delaware
10. Utah

For the analysis and to remove distortions from mega-banks, only banks with less than $10 billion in assets were considered.

As in previous years, banks from the mid-West and the Northeast dominate the list. Both of these regions avoided the worst of the housing crash. States like North Dakota, Alaska, Iowa, and Nebraska have benefited from surging commodity prices and a resurgent domestic oil market. The Northeast, mindful of the banking crisis in the 1980s, avoided the worst of the mortgage and sub-prime excesses from 2002-2005.

Why Does Bank Safety Matter?

Even with FDIC coverage, it’s important to know the general safety of your bank for several reasons. In 2013 alone, thirteen banks have failed through May 14. In the event of a bank failure:

• Not all deposits are covered. According to the FDIC, up to 20% of deposits in U.S. banks are not covered by FDIC insurance because deposits are over the $250,000 limit. In the event of a bank failure depositors can, and have lost money.
• Great rates might not be honored. Banks that fail are often acquired by stronger institutions. But these institutions do not need to honor prior CD rates and other terms from the failed bank.
• It can be inconvenient. While the FDIC generally moves quickly when taking over a failed bank, there can be a several day disruption and lack of access to cash. Depending on the timing this could be a major or minor inconvenience. A depositor of a failed bank may also find themselves a member of another institution that they never chose and prefer not to bank with.

Then there is the small, yet real specter of a massive financial collapse, like what nearly happened in 2008. If one or two of the too-big-to-fail banks go under, the government may not have the cash to prop up other banks. This is essentially what happened in Cyprus, where massive bank failures bankrupted the government. Despite providing deposit insurance, Cyprus officials considered forcing losses on insured funds before the public outcry forced them to backpeddle. There are over $7 trillion in insured deposits and the government does not have the money to insure even half of it with today’s high public debt.

How to Check the Safety of Your Bank

Even if you live in one of the safest states, it’s wise to check the safety of your bank. There are several ways to do this. Sites like Bauer Financial offer ratings of every FDIC insured bank in the country. BestCashCow provides financial data and guidance on every FDIC insured bank and NCUA insured credit union in the United States.

Beyond checking on the health ratings of your bank or credit union, be sure to stay below FDIC or NCUA insurance levels.

No depositor has ever lost money from funds covered by FDIC or NCUA insurance. But housing values had never dipped on a national basis since the great depression until 2008. It pays to spend a few minutes understanding the financial position of the bank that you trust with your money.

Here is our list of the 10 Least Safe States to Bank.

In this 2012 article, I discussed the Bank Direct American Airlines program which was a one-of-a-kind account that enabled depositors to earn as much as 240,000 American Airlines Airmiles a year on deposit balances of $200,000. Depending on your use of the miles, many depositors had found that this compares favorably with the returns on online and branch savings accounts. Even after the implementation of a $12 monthly service change in early 2012, the program remained interesting for those depositing close to the $200,000 limit; those depositing much less found that the charge and the forgone interest ate away the value of the American Airlines Airmiles.

Effective June 1, the terms of the program will change dramatically. Bank Direct will only be giving 100 miles per month per $1,000 deposited on your first $50,000 deposited, and 25 miles per month per $1,000 on all amounts over $50,000. A $200,000 deposit will now earn no more than 105,000 American Airlines miles, fewer than half of the amount previously awarded. Given that you can now earn this many miles by opening a Citibank credit card, it hardly makes sense anymore to tie up your money in an account where you are basically buying miles at $12 a month and foregoing interest.

While American Airlines has averted bankruptcy, it has also agreed to a merger with US Airways. Its miles have already become less valuable due to decreased availability of "Saver" awards on most domestic and international routes. If it follows Delta's precedent, the merger will render its miles close to worthless.

In short it is foolhardy to stay with Bank Direct. It is time to move your money to an interest bearing account.

I went on vacation last week and was driving down to Washington D.C. when news reached me of the Boston Marathon bombing. I grew up and live in Boston and have been at the finish line many times, so the news of the attack came as a shock. Sad. In Washington, we visited the Capitol and when officials asked where we were from and heard Boston, they'd nod their heads and express sympathy. It was a tough week and not one focused on financial events.

I had hoped that when I came back that rates would have done someting surprising, maybe a positive move to counteract the negative events in Boston. But no, the downward trend continues. CD rates declined last week for the 79th straight week. Average one-year CD Rates dipped from 0.373% to 0.371% APY. Three year average CD rates dropped from 0.738% to .734% APY. Five year average CDs dropped to from 1.081% to 1.075% APY. The one bright spot, online savings account rates even dipped a bit, falling from 0.707% to 0.705% APY. We remain on pace to see a sub-1% average APY on a 5 year CD rate by August or September.

Even if the averages are all below 1%, the top rates are still significantly higher. BestCashCow data shows the top rates for some key terms are:

• Online Savings: AmTrust Direct retained the top spot at 1.05% APY.
• 1 Year CD: Three banks retain the top spot at 1.05% APY.
• 3 Year CD: Navy Federal Credit Union continues to have the highest rate at 1.40% APY.
• 5 Year CD: Barclays Bank Delaware occupies the top spot alone at 1.85% APY.
• Rewards Checking: Hope Credit Union and Money One Federal Credit Union both have the top rewards checking rate of 3.01% APY for balances up to $10,000. Both credit unions are open to members from across the country.

Local banks and credit unions often offer better rates (especially for CDs) than online banks so be sure to check them out.

The chart below shows the trend in average rates since October 2012.

The difference in the rate of decline between online savings and CD rates can be viewed on the chart below, which shows the spread between online savings account rates and 12 month CDs. On average, online savings account rates pay 0.334 percentage points more than 1 year CDs, up from 0.23 percentage points more at the beginning of last year but down from the spread's high of 0.344 percentage points in late January.

General rate environment

Bloomberg had an article on the timing of a rate hike with most economists believing it won't happen until 2015. Bottom line is that until unemployment comes down further, we're stuck in a low rate environment.

The National Association of Realtors reported on March existing home sales and the news is no real news. Home sales declined 0.6 percent but according to Lawrence Yun, Chief Economist for NAR, that was because there was more demand than supply. He stated that:

"Buyer traffic is 25 percent above a year ago when we were already seeing notable gains in shopping activity. In the same timeframe housing inventories have trended much lower, which is continuing to pressure home prices. The good news is home construction is rising and low mortgage rates are continuing to keep affordability conditions at historically favorable levels. The bad news is that underwriting standards remain excessively tight, while renters are getting squeezed by higher rents."

Bottom line: housing continues to improve but no big gains.

My outlook: Savings rates will continue to drift lower for the next 8-14 months before beginning to move higher. How high and how fast they move will depend on the level of local, state, and federal taxes and cuts; the continuation of a recent economic uptick; technological advances; and the ability of Europe to put its woes behind it and resolve its fiscal problems.

Savings Accounts or CDs?

The data continues to show that opening a savings account is a better bet than a 1-3 year term CD and I expect this to hold through 2013. Online savings accounts have held the line over the past year while CD rates continue to fall. As the chart shows, the premium for opening a longer-term CD has eroded significantly and continuously over the past year. While the premium for opening a 5 year CD over a 1 year CD was 1 percentage point in October 2011, it now stands at .704 percentage points.

Is it worth it to go long and open a 5 year? If you don't need the money, it's probably okay. Rates may begin to rise in the next year but they probably won't shoot up. Inflation looks to remain tame. There is also the chance that we go Japanese and rates continue to decline, bottom out, and stay low for the next 5-10 years. In that case, a 5-year CD today would look good. I don't expect that to happen, but it could.

For money you want to keep liquid, go with online savings accounts. They offer better rates than 1-3 year CDs and athough several banks have dropped rates in the past month, they have still offered decent rate stability over the past year and a half.

If you want to take advantage of the higher rates on longer-term CDs, look to open them at local community banks. BestCashCow research has shown that community banks and credit unions offer the most competitive rates on longer-maturity CDs. Otherwise, you'd be better off keeping your money liquid in an online savings account.

I believe this is the best and easiest strategy for keeping your cash liquid and maximizing your savings over the next year.

Make the best of a tough savings situation in 2013

Yields may be low in 2013 but a savvy saver can boost the return with no increase in rate by rate shopping. By shopping around, a saver can earn an extra half to full percentage point. On $100,000, that's $1,000 in extra cash per year. Remember, even in today's environment, there is competition for your cash.

• Find the best savings account rates
• Find the best CD Rates