Are Fintech Banks FDIC Insured?

There are lots of ‘fintech banks’ with nice interest rates or other perks. The question is are these fintech banks FDIC insured?

Some examples of fintech banks: Chime, Wealthfront, T-Mobile Money, Yotta, Savebetter/Raisin, Maxmyinterest, Upgrade, Cash app, Empower. I’m not saying all these fintechs are created equal, more on that below.

All of these are accounts without their own FDIC insurance; they partner with FDIC-insured banks. When you deposit money into the fintech, they immediately send the funds over to the FDIC insured bank.

We’ll often see on a fintech website that, “We are a financial services platform, not a bank. Banking services and FDIC Insurance provided by our banking partner.”

To be clear: an ‘online bank’ or ‘digital bank’ is not part of our discussion here. With the rise of mobile banking, there are now many banks (such as Ally or Marcus) which are fully digital, online-only banks. These banks are fully FDIC insured, and are no less safe than any other FDIC insured physical bank.

Often fintechs advertise that your funds are FDIC-insured above the standard $250k FDIC limit. That’s because they partner with multiple bank backers and they transfer $250k to each of their partners which leads to a higher insured limit. It saves you from having to split your money across multiple institutions as the fintech does this for you.

We saw recently the shocking failure of SynapseFi/Yotta/Juno. Essentially what happened there is that various fintechs, such as Yotta and Juno, partnered with Evolve Bank as their FDIC banking partner. Yotta and Juno took customer deposits and deposited the funds with Evolve. SynapseFi was a middle-man technology company who was supposed to keep the records of funds as they were transferred from the fintech (Yotta, Juno) to the real bank (Evolve). Synapse went bankrupt and somehow won’t give access to their books which show the flow of funds between the fintech and the banks. Somewhere in the fog, tens of millions of dollars went missing and no one knows where they are. Some customers are out hundreds of thousands of dollars on funds stored in a “FDIC insured” account. (That was a rough explanation of the Yotta/Juno saga; there are probably some finer points of the store that I’m missing. The aim is to show what can go wrong when there are various arms involved in fintech banking.)

The most important factors I see in regards to security of funds at fintechs:

• Does the fintech have any sort of insurance on themselves or only with the partner bank? Most fintechs do not have any sort of personal insurance.
• Does the customer and the partner bank get a direct connection with the bank knowing the identity of the customer and the customer having the routing/account number of the bank?
• In some cases, it’s possible that the fintech is just a front for branding purposes. In reality your account is directly with the partner FDIC insured bank.
• There are probably other important factors we missed here. Hopefully this post can serve as a conversation starter. I’ll add to the post any other important factors that I learn.

I don’t personally have accounts with many fintech banks, and I’m not honestly sure which ones offer a more direct connection with the bank and which act as their own intermediary.

Wealthfront is an example of a ‘fintech’ which I personally would be comfortable keeping large sums with. That’s because Wealthfront itself is a brokerage which has SIPC insurance, and so even while the funds are in transit they have a solid insurance coverage. Also, from what I understand, Wealthfront gives you the routing/account numbers to the partner bank, and so your name is directly associated with the FDIC bank backer. Update: others feel that SIPC would not help cover for funds which are there with intent to stay in cash; see this comment.

There are likely other fintechs which are quite safe as well, including some mentioned above. This article is not to cast shade on any of these companies or on the fintech industry at large. I simply don’t know enough to recommend one fintech or another.

I’d be comfortable using various fintechs for limited sums of money. For example, if a fintech runs spend promos or has other perks and benefits, I’d be comfortable depositing minimal amounts to use the account as needed. When depositing larger sums, I’d want to do more research and understand better the FDIC connection and how directly the funds are linked from me to the FDIC-insured bank.

If you want to ensure a bank is truly FDIC insured, check on their homepage for a comment which states, “XYZ Bank is member FDIC.” It’s also worth verifying insured status for directly with FDIC and with NCUA before using a bank or credit union.