What to know about fintech, banking relationships, and deposit insurance
Technology has continued to transform the business of banking in recent years. Traditionally, consumers opened deposit accounts directly with banks (whether in-person, on the bank’s website, or through the bank’s mobile app). The easiest way for most consumers to have confidence that their money is safe continues to be opening an account directly with insured depository institutions, like FDIC-insured banks and savings associations.
Increasingly, some consumers are choosing to open accounts through nonbank companies (typically online or through mobile apps), such as technology companies providing financial services (often referred to as fintech companies), that may or may not have business relationships with banks. If and how a bank is involved is key to understanding whether or not your money is protected by deposit insurance. However, in some cases, it is not always clear to consumers if they are dealing directly with an FDIC-insured bank or with a nonbank company.
FDIC deposit insurance coverage
If you open a deposit account directly with an FDIC-insured bank, you are insured for up to at least $250,000 by the FDIC, which is backed by the full faith and credit of the United States government.
Most banks offer online and mobile banking options, in addition to having branches, giving you the ability to conduct your banking at a branch or while you are at home or on the go. Online or in person, bank customers with deposits at FDIC-insured banks benefit from deposit insurance coverage.
Nonbank companies
But what if you open an account with a nonbank company that says it will deposit your money in an FDIC-insured bank? Will you be eligible for FDIC deposit insurance coverage? The short answer is: it depends.
It is important to be aware that nonbank companies themselves are never FDIC-insured. Even if they claim to work with FDIC-insured banks, funds you send to a nonbank company are not eligible for FDIC insurance until the company deposits them in an FDIC-insured bank and after other conditions are met. If the nonbank company deposited your funds in a bank, then, in the unlikely event of the bank’s failure, you may be eligible for what is referred to as “pass-through” FDIC-deposit insurance coverage. However, the nonbank company must take certain actions for your funds to be eligible for FDIC insurance.
For example, after the nonbank places your funds on deposit at a bank, records must be kept to identify who owns the money and the specific amount that each person owns. Ownership of the money is important and is typically determined by the applicable deposit account agreements and state law. There are other requirements as well. It is important to make sure you read the disclosures and terms of service carefully to understand if the account may be eligible for FDIC insurance.
However, FDIC deposit insurance does not protect against the insolvency or bankruptcy of a nonbank company. In such cases, while consumers may be able to recover some or all of their funds through an insolvency or bankruptcy proceeding, often handled by a court, such recovery may take some time. As a result, you may want to be particularly careful about where you place your funds, especially money that you rely on to meet your regular day-to-day living expenses.
Nonbank companies, including fintechs, may offer a variety of financial products and services. They may or may not offer access to deposit products at banks that are FDIC-insured. If a nonbank company claims to offer access to products that it states are FDIC-insured, you should identify the specific FDIC-insured bank or banks where they say they will deposit your funds. You can confirm that the bank they claim to be working with is FDIC-insured using BankFind. If technology glitches happen with the services provided by a nonbank company, such as at its app or website, you may experience error messages, slow response times, or site crashes that temporarily impede access to your accounts or other mobile banking services. Be sure to contact the nonbank company’s customer service as soon as possible to help resolve the issue.
How can I avoid fake banks and apps?
You should be aware of the potential for scams and be vigilant about protecting your money. Scammers often create fake websites that are so similar to bank websites, they can easily trick consumers into providing personal information or money. Scammers have also developed fake apps that contain malware. When you download the app, the malware steals personal information from your device or locks it, holding it for ransom until you pay the scammers. Be careful of apps or websites that ask for suspicious permissions, such as granting access to your contacts, text messages, stored passwords, or credit card information.
To determine whether you are dealing with an FDIC-insured bank and check whether the URL is in the FDIC’s records, you can use our BankFind tool. Because many FDIC-insured banks have provided URLs for their websites, if a website is listed in the FDIC’s records then you can be more confident that it is run by a bank. You can also contact the FDIC at 877-ASK-FDIC (877-275-3342) from 8:00 am to 6:00 pm ET Monday through Friday, or 8:00 am to 1:00 pm ET Saturday, to report a suspected scam.
In addition, you can call an FDIC deposit insurance expert at 1-877-ASK-FDIC or email the FDIC through our website, ask.fdic.gov. FDIC deposit insurance experts are happy to help confirm whether or not you are dealing with an FDIC-insured bank and assist you with any deposit insurance-related questions.
It is important to understand who you are dealing with before turning your money over or sharing personal information. If you send money to a scammer or fraudster, it may be difficult or impossible to recover your money. Knowing the characteristics of impostor scams and fake bank websites and apps can help you avoid becoming a victim.
For more information on fintech and mobile banking, visit:
FDIC Fintech: A Bridge to Economic Inclusion
FDIC Fact Sheet: What the Public Needs to Know About FDIC Deposit Insurance and Crypto Companies
FDIC: Understanding Deposit Insurance
FDIC: Are My Deposits Insured by the FDIC?
FDIC: Electronic Deposit Insurance Estimate (EDIE)
FDIC Consumer News: Banking with Apps
FDIC Consumer News: Is My Money Insured by the FDIC?
Consumer Financial Protection Bureau (CFPB): Finds that Billions of Dollars Stored on Popular Payment Apps May Lack Federal Insurance
For more consumer resources, visit FDIC.gov, or go to the FDIC Knowledge Center. You can also call the FDIC toll-free at 1-877-ASK-FDIC (1-877-275-3342). Please send your story ideas or comments to ConsumerEducation@fdic.gov. You can subscribe to this and other free FDIC publications to keep informed!