I learned recently that FinTech companies like Wealthfront actually aren’t FDIC insured but like to claim they are because the banks they use behind the scenes are.
But there was one case where a similar FinTech company went belly up for whatever reason and their platform closed down, and customers couldn’t claim back their savings because apparently all the money from everyone was pooled into a single (or a couple) of accounts on each of the backend banks, and the banks had no idea how much was owned by who. I moved most of my money out of my Wealthfront HYSA after learning about that.
It’s technically true (“insured via”) but customers get into a false sense of security. We don’t know how they manage the money in their partner banks behind the scenes. If they operate like Yotta (in the linked article) did, then good luck getting your money back if Wealthfront suddenly closes. And the worst part is you can’t claim insurance with Wealthfront because they aren’t actually insured (the partner banks are) and they don’t actually have any of your money.
Of course I’m not claiming Wealthfront has the same setup. But I’d rather just deal directly with an FDIC-insured bank than have that uncertainty. Besides, Wealthfront’s rates aren’t any better than other banks right now anyway.
I learned recently that FinTech companies like Wealthfront actually aren’t FDIC insured but like to claim they are because the banks they use behind the scenes are.
But there was one case where a similar FinTech company went belly up for whatever reason and their platform closed down, and customers couldn’t claim back their savings because apparently all the money from everyone was pooled into a single (or a couple) of accounts on each of the backend banks, and the banks had no idea how much was owned by who. I moved most of my money out of my Wealthfront HYSA after learning about that.
To see if your financial institution is directly insured, you can check here: https://banks.data.fdic.gov/bankfind-suite/bank
EDIT: Found an article: https://www.cnbc.com/2024/07/02/synapse-fintech-fdic-false-promise.html
Well that’s concerning. They say it’s all insured via the partner banks ( https://www.wealthfront.com/blog/wealthfront-fdic-insurance/ ) but you can just put anything on a website.
It’s technically true (“insured via”) but customers get into a false sense of security. We don’t know how they manage the money in their partner banks behind the scenes. If they operate like Yotta (in the linked article) did, then good luck getting your money back if Wealthfront suddenly closes. And the worst part is you can’t claim insurance with Wealthfront because they aren’t actually insured (the partner banks are) and they don’t actually have any of your money.
Of course I’m not claiming Wealthfront has the same setup. But I’d rather just deal directly with an FDIC-insured bank than have that uncertainty. Besides, Wealthfront’s rates aren’t any better than other banks right now anyway.