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.
    Chuck
  • On December 3, 2024, 11:00
Tags: bank accounts

View Comments (222)

  • As maybe others have noted: The whole Synapse bankruptcy debacle was independent of the safety & soundness of the partner banks, i.e., FDIC insurance was never a real issue. The problem lay in the poor recordkeeping, mainly by Synapse as middleware provider, whereby they "lost track" (to be polite) of individual account balances and transactions.

    Maybe oversimplifying, but the banks knew they owed fintech customers $XXX million in the aggregate (held in massive FBO accounts), but didn't have reliable enough individualized balances/records to support immediate payouts.

    PS. In the wake of all this, the FDIC has proposed rules putting greater responsibility on banks for detailed records, reconciliations, etc.

    • The additional burden on banks will probably mean banks won't want to partner with fintechs anymore. This could spell the end for many fintechs. Frankly the industry deserves it. It couldn't police itself and with each failure, garnered more bad press. Who would trust them now after the Nth fintech has failed?

    • So... the setup was this so-called fintech, then another layer, then the bank. Basically confirms my impression that most fintechs are just smoke and mirrors to inflate the revenue and then somehow get the money by selling the never profitable fintechs to bigger institutions, or just waste the venture capital funding.

      Here, the money went "missing", and nobody seems to care. Trying to sue them as an individual or even as a group will be pretty onerous for the wronged customers. In short, I think even internet only real banks are not exactly safe, while these fintechs are good only for getting an occasional bonus out of them without putting more than a couple of thousands there, and only for a few months at most.

      Also, the proposed changes by FDIC for yet more regulations and compliance departments will be paid for by the bank customers, i.e. by you and me. I am not exactly jumping up and down with joy.

      • I think you're maybe painting with too broad a brush. There are plenty of "internet only" banks with good customer service, product offerings, etc. While I think more rigorous recordkeeping is needed & desirable, who "pays for it" -- customers vs shareholders -- and whether doing business with fintechs is ultimately profitable for the banks will vary case by case.

        Just my opinion.

  • From Wealthfront's website: FDIC insurance is not provided until the funds arrive at the program banks. 

  • What about the funds in Coinbase Futures usd account? Is that insured by any insurance? Anyone? Guys? Folks? Dearest DoC readers?

  • I notice Future does not have the FDIC banner but gives you your account and routing numbers at Piermont Bank. Piermont got appropriately scuffed up by regulators in 2022, which shows serious problems, but also shows they actually have third-party oversight. Sort of a "devil you know" situation. Now that they have instant debit funding again, easy to limit the amount you keep there.

  • I kept 100k at Juno for over 12 months when they were crediting 5%. They seemed legit to me. I count my blessings that they cut the rate to <1% before the fiasco and i instantly took out all my money. i have $140 left there that is i guess untraceable.

    I consider myself enlightened now. Good article!

    • Evolve should have emailed you about the status of your $140 early last month. Did they do that?

      • Presumably when Mike says “that is I guess untraceable” that means that evolve claims the funds appear on Synapse’s ledger but were not held at Evolve so Mike like so many of us was told to pound sand

  • This scares me regarding Wealthfront. They claim there is insurance up to 8million but I don’t have any proof besides what Wealthfront shows me in the Wealthfront account. I don’t know where any of my money it is sitting at the moment.

  • Please stop calling them "fintech bank". They aren't banks. The term "bank" is a regulated term and only FDIC-insured institutions are allowed to call themselves a bank. No other business is permitted to use the term "bank" in their business name.

    • To be fair, many people here write "fake DD" when there is really no such thing and you and many others seem fine with that. 😉

      • There's no such thing as "fake DD"? What do you mean by that? Would it be better to call it an illegitimate DD? @guest_1964084

        • @guest_1965407,

          Unlike most people on here, I don't mind being questioned on comments that I make. I'm glad that you asked.

          I just pulled this definition from the below website: "The term direct deposit refers to the deposit of funds electronically into a bank account rather than through a physical, paper check. Direct deposit requires the use of an electronic network that allows deposits to take place between banks. This network is called the automated clearing house (ACH)."

          Therefore, any ACH transfer is basically a DD. When people write "fake DD", they really mean that they are trying to trick the system into thinking that it is a QDD. It would be more accurate to write "fake QDD". I prefer to write "fake" DD. To each their own. 😀

          https://www.investopedia.com/terms/d/directdeposit.asp

  • Having an Evolve account and routing # apparently means nothing - I had both as part of my Juno account. Evolve still claims they don't have my ~$400.

    • That's rough that you lost your entire $400. A rep from Evolve told me recently that it's possible that all of us will be made whole one day. I wouldn't count on it though.

      • Lots of people lost way more unfortunately. I’m out over $5k. Some people had five and six figure balances with Juno that evolve claims not to have.

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