I write about fintech and fintech banking apps a lot, so I sometimes get asked what I think about these companies and how safe they are, especially given some of the negative news that\u2019s happened with some of them in the past year.<\/p>\n
As a bit of background, most of the fintech banks you see out there (sometimes called \u201cneobanks) aren\u2019t actually banks. Rather, they\u2019re technology apps that partner with licensed banks to hold your funds. These funds are held in custodial accounts, which are financial accounts set up for the benefit of a beneficiary (in this case, the customer).<\/p>\n
At the outset, it\u2019s important to note that having your funds held in a custodial account isn\u2019t inherently unsafe. So long as there is proper record keeping, the funds held in custodial accounts have the same protections as any regular, FDIC-insured bank account. Issues can arise, however, when there\u2019s improper record keeping or other issues with the intermediaries that most of these fintech companies work with.<\/p>\n
The big example came this past year when customers of fintech apps Yotta and Juno found themselves unable to withdraw their funds from these apps. This is going to probably be an oversimplification of what happened, but the gist is that a company called Synapse declared bankruptcy. Synapse acted as the intermediary between Yotta\/Juno and the FDIC-insured banks that held the funds, but because Synapse didn\u2019t do proper recordkeeping and doesn\u2019t have the ability to reconcile the funds due to their bankruptcy, the partner banks that hold the funds have no way of differentiating the funds that are in these custodial accounts. In other words, the money is still in these FDIC-insured banks, but there appears to be no way for the bank to figure out whose funds belong to whom.<\/p>\n
This Synapse bankruptcy has led to Yotta and Juno customers getting their funds frozen<\/a>, leading to people being unable to access their funds. To date, there are still millions of dollars in funds unaccounted for, with no clear timeline for when or if customers will get access to their money. As you can expect, lawsuits have been filed, but even with all the news and legal action, it may be years before customers are made whole, if ever.<\/p>\n FDIC insurance is supposed to protect consumers from financial issues like this, but what happened here with these fintech apps is something that FDIC insurance wasn\u2019t made to address. So given this, it\u2019s worth asking whether it\u2019s safe to even use these fintech banking apps. My general thought is this \u2013 with established fintech companies, I\u2019m fairly confident that my funds will remain secure and accessible. That being said, there are legitimate concerns with these fintech companies, so this is what I do on my end.<\/p>\n Interestingly enough, when looking at my money system, it turns out that most of my money is held in traditional banking products, rather than with fintech apps.<\/p>\n Here\u2019s a look at what I use for all of my main financial accounts:<\/p>\n Banks like Ally, Marcus by Goldman Sachs, and Discover are traditional banking products, with the main difference being they\u2019re entirely online. This is fine for me, as I never need to go into a physical bank branch. If I ever do need to go into a physical bank branch, I can usually do so since I typically will have a brick-and-mortar bank account open, since I\u2019m usually opening new accounts for bank bonuses (see The Ultimate Guide to Bank Account Bonuses<\/a>).<\/p>\n Meanwhile, the fintech banking apps I use include Raisin, Found, and Novo. M1 Finance is also a fintech investment app, but it\u2019s an SEC-registered broker-dealer, so I have zero concerns about the investments I hold there.<\/p>\n Found<\/a> and Novo<\/a> are both fintechs that provide business checking accounts. They make it clear on their websites that they are not banks.<\/p>\n Just from that language, you can see there must be some more risk as compared to using a traditional bank. My rationale for being okay with that risk is two-fold. First, both Found and Novo partner with a single bank for their bank accounts, and they make it clear throughout their websites that your funds are FDIC-insured. My hope is that this clear relationship between these companies and their sponsor banks will mean that the funds are accurately accounted for.<\/p>\n The second, more important reason I use these accounts is that I find the traditional business checking products to be so poor that I think it\u2019s worth the added risk of using a fintech banking product here. I\u2019ve found that most of the traditional business checking account options are horrible, especially for gig workers and small businesses. My main issues with most of these traditional business checking accounts are that they typically require a minimum balance, or worse yet, they nickel and dime you by charging fees for everything. Many of these products also have terrible online interfaces. Given this, I\u2019m willing to opt for what I think are better products.<\/p>\n I\u2019ve also gone through one of these fintech checking accounts shutting down. Years ago, I used a fintech called Azlo, which I used as my primary business checking account for this blog. The app was shut down in 2021 and I was able to move all my funds to Novo without any issues.<\/p>\n As for Raisin, I\u2019m okay using it for my emergency fund because of the good rates I\u2019m getting. Raisin is also well established in Europe, which tends to have strong banking regulations and makes me feel more comfortable that they are doing things correctly here. And finally, on their website, Raisin makes it clear that any funds in the Raisin platform are held in custodial accounts (\u201cWhen a customer makes a deposit through the Raisin platform into a savings product offered by a given financial institution, the funds move from the customer\u2019s external bank account (also referred to as their reference account) to a custodial account held by one of Raisin\u2019s partner custodial banks at the financial institution offering the savings product.\u201d), but more importantly, they say that your funds are linked to your ID and differentiated from other funds (Raisin says this on their website: \u201cYour money is linked to your unique Raisin ID at all times, ensuring that your savings are always differentiated from other customers\u2019 funds.\u201d).<\/p>\n Source: https:\/\/support.raisin.com\/hc\/en-us\/articles\/20566221370772-What-is-a-custodial-account-and-how-does-it-work<\/a><\/p>\n This is important, as differentiating your funds with proper record keeping ensures that your custodial accounts are FDIC-insured and that pass-through insurance applies. So, given that Raisin seemingly makes it clear that they do this, I\u2019m a bit more comfortable with keeping significant funds in Raisin.<\/p>\n I\u2019ve laid out my position on some of these fintech apps and why I use them, and while I\u2019m comfortable with my funds being in these fintech apps, I know that not everyone is going to have that same comfort level.<\/p>\n If you\u2019re concerned about these fintech apps (which is very fair), my advice is to stick with traditional banking products. That being said, I wouldn\u2019t use traditional brick-and-mortar banks because I find most of them have terrible banking products.<\/p>\n Instead, I\u2019d recommend online-only banks like Ally. Remember that traditional banking products do not need to have physical locations. Online banks like Ally or SoFi are bank holding companies and are covered by the same FDIC insurance as any brick-and-mortar bank.<\/p>\n When it comes to checking and savings accounts, I always recommend Ally. I think they are the best overall bank account, and they offer good rates on their high-yield savings account. For banking stuff, you could do everything with just Ally and you\u2019d be fine and could take comfort in knowing all your money is secure.<\/p>\n In general, I think most established fintech companies are probably fine, but I cannot say for certain that there is zero risk with using them.<\/p>\n Certain fintech products make sense to me (mainly the business checking fintech products and Raisin). That being said, I don\u2019t think it\u2019s necessary to use any of these if you aren\u2019t comfortable with them. For savings accounts, there are plenty out there that offer good rates without a ton of hassle. High-yield savings accounts from banks like Ally, Discover, or Marcus by Goldman Sachs are the ones I usually recommend, but there are more niche options as well that offer higher interest rates.<\/p>\n For business checking accounts, American Express seems to have one that I think is pretty good. It has no fees or minimum balance requirements, which means it meets the no-fee and no minimum balance requirement that I have when it comes to any bank account. And since\u00a0American Express is a bank holding company, your funds are fully insured with no risk of any kind.<\/p>\n The main thing is to understand what you are doing and do what you are comfortable with. I\u2019m primarily using traditional banks, but I do have a few fintech companies that I use for various reasons. It\u2019s what I\u2019m comfortable with, but works for me might not be what works for you.<\/p>\n \u00a0<\/p>\n This post may contain affiliate links. Financial Panther has partnered with AwardWallet and CardRatings for our coverage of credit card products. Financial Panther, AwardWallet, and CardRatings may receive a commission from card issuers. Some or all of the card offers that appear on the website are from advertisers. Compensation may impact on how and where card products appear on the site. The site does not include all card companies, or all available card offers. Opinions, reviews, analyses & recommendations are the author\u2019s alone, and have not been reviewed, endorsed or approved by any of these entities.<\/em><\/p>\n Check out these other ebikes and scooters I’ve reviewed:<\/p>\n
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\n <\/ul>\n<\/div>\n For additional <\/span>investing app bonuses, be sure to check out the ones below:<\/p>\n
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\n <\/ul>\n<\/div>\n Kevin is an attorney and the blogger behind Financial Panther, a blog about personal finance, travel hacking, and side hustling using the gig economy. He paid off $87,000 worth of student loans in just 2.5 years<\/a> by choosing not to live like a big shot lawyer.<\/p>\n Kevin is passionate about earning money using the gig economy and you can see all the ways he makes extra income every month in his side hustle reports<\/a>.<\/p>\n Kevin is also big on using the latest fintech apps to improve his finances. Some of Kevin’s favorite fintech apps include:<\/p>\nI\u2019m Still Using Some Fintech Apps, But I\u2019m Aware Of The Potential Risks<\/h2>\n
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If You Want To Be Safe, Stick To Traditional Banks<\/h2>\n
Final Thoughts<\/h2>\n
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