Fintech
FDIC: Banking with third-party apps
What to know about fintech, banking relationships and deposit insurance
Technology has continued to transform banking in recent years. Traditionally, consumers opened deposit accounts directly with banks (in person, on the bank’s website, or via the bank’s mobile app). The easiest way for most consumers to be confident that their money is safe is to open an account directly with insured depository institutions, such as FDIC-insured banks and savings associations.
Increasingly, some consumers are choosing to open accounts through non-bank companies (typically online or through mobile apps), such as technology companies that provide financial services (often called fintech companies), which may or may not have business relationships with banks. Whether and how a bank is involved is crucial to understanding whether or not your money is protected by deposit insurance. However, in some cases, it is not always clear to consumers whether they are dealing directly with an FDIC-insured bank or a non-bank company.
FDIC deposit insurance coverage
If you open a deposit account directly with an FDIC-insured bank, you are insured up to at least $250,000 by the FDIC, which is backed by the full faith and credit of the U.S. Government.
Most banks offer online and mobile banking options, as well as having branches, giving you the option to do your banking at a branch or while you’re at home or traveling. Online or in person, banking customers with deposits at FDIC-insured banks benefit from deposit insurance coverage.
Non-banking companies
But what if you open an account with a non-bank 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 non-bank companies themselves are never FDIC insured. Even if they claim to work with FDIC-insured banks, funds sent to a non-bank company are not eligible for FDIC insurance until the company deposits them into an FDIC-insured bank and after other conditions are met. If the nonbank company deposited your funds into a bank, then, in the unlikely event of the bank’s failure, you may be entitled to what is called FDIC “pass-through” deposit insurance coverage. However, the nonbank company must take certain actions for your funds to qualify for FDIC insurance.
For example, after the non-bank deposits funds into a bank, records must be kept to identify who owns the money and the specific amount each person owns. Ownership of money is important and is generally determined by applicable deposit account agreements and state law. There are other requirements too. It is important to make sure you read the disclosures and terms of service carefully to understand whether your 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, although consumers may be able to recover some or all of their funds through an insolvency or bankruptcy proceeding, often administered by a court, such recovery may take some time. As a result, you may want to pay particular attention to where you place your funds, especially money you rely on to meet normal day-to-day living expenses.
Non-bank companies, including fintechs, can offer a variety of financial products and services. They may or may not offer access to deposit products at FDIC-insured banks. If a non-bank company claims to offer access to products that it claims to be FDIC insured, you must identify the specific FDIC insured bank or banks where they claim they will deposit the funds. You can confirm that the bank they claim to work with is FDIC insured BancaTrova. If you experience technological issues with services provided by a non-banking company, such as in its app or website, you may experience error messages, slow response times, or site crashes that temporarily prevent access to your accounts or other mobile banking services. Be sure to contact the non-banking 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 careful to protect your money. Scammers often create fake websites so similar to bank websites that 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 wary 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 if you are dealing with an FDIC-insured bank and see if the URL is in FDIC records, you can use our BancaTrova tool. Because many FDIC-insured banks have provided URLs for their websites, if a website is listed in FDIC records, you can be more confident that it is operated by a bank. You can also contact the FDIC at 877-ASK-FDIC (877-275-3342) between 8:00 AM and 6:00 PM ET Monday through Friday, or 8:00 AM until 1:00 PM ET on Saturdays, to report a suspicious fraud.
Additionally, you can call an FDIC Deposit Insurance Specialist at 1-877-ASK-FDIC or email the FDIC through our website, ask.fdic.gov. FDIC deposit insurance experts are happy to help you confirm whether or not you are dealing with an FDIC-insured bank and to assist you with any questions related to deposit insurance.
It’s important to understand who you’re dealing with before handing over your money or sharing personal information. If you send money to a scammer or fraudster, it may be difficult or impossible to get your money back. Knowing the characteristics of impostor scams and fake banking websites and apps can help you avoid becoming a victim.
For more information on fintech and mobile banking, visit:
FDIC Fintech: A bridge towards 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)
Consumer News from the FDIC: Bank with apps
Consumer News from the FDIC: Is my money insured by the FDIC?
Consumer Financial Protection Bureau (CFPB): Finds that billions of dollars stored on popular payment apps may not have federal insurance