When you deposit money with a bank that’s insured by the Federal Deposit Insurance Corp., the government guarantees that the funds will be protected, up to certain limits, if the bank fails. Many financial-technology companies that offer banking products; such as checking or savings accounts, are not FDIC insured, so customers’ funds are instead passed through to an institution that has FDIC coverage, although customers continue to interact with the fintech for banking services. This setup is designed to protect customers’ funds if the fintech goes belly up. But tens of thousands of customers of Juno, Yotta and other online fintech companies encountered freezes on their accounts and were denied access to their money after Synapse Financial Technologies, a “deposit broker” that connects fintech firms to FDIC-insured banks, filed for bankruptcy last spring. Synapse maintained complex and faulty financial ledgers, according to court filings, and there’s a shortfall of as much as about $95 million in funds owed to customers. Recently, many·customers were still waiting for their funds- and some may never get all their money back.
Ensuring deposit coverage.
The Synapse meltdown demonstrates that when a fintech promises federal deposit coverage for account holders, that
promise may not hold up if the system doesn’t work as intended. According to the FDIC’s website, “even if non-bank companies partner with FDIC-insured banks, funds you send to a nonbank company are not FDIC insured unless and until the company deposits them in an FDIC-insured bank.”
The safest option is to open accounts directly with an FDIC insured bank or with a credit union that’s covered by the National Credit Union Share Insurance Fund. To find out whether a bank is federally insured, search for it at https://banks.datafdic.gov/bankfind-suite/bankfind. To look up a credit union, go to https://mapping.ncua.gov/ResearchCreditUnion.
Backed by the U.S. government, the FDIC generally provides coverage of up to $250,000 per depositor, per account ownership category in the event of a bank failure. Similarly, the NCUSIF covers up to the same value per depositor in accounts held at credit unions. If you are the sole owner of a checking account, savings account and
a certificate of deposit with a single institution, for example, your money is fully insured as long as the aggregate balance of those accounts is no more than $250,000. Additionally, if you have joint accounts, each depositor gets up to $250,000 in coverage-so a couple is insured up to $500,000 for their joint accounts. Use the calculators at httpsj/ediefdic.gov or https:// mycreditunion.gov/insurance
estimator to check whether your deposits are fully insured.
Article by: MARIAH ALANSKAS