How to Decide Whether to Put Your Cash in a Bank, Neobank, or Fintech Platform
We've all wondered if our money is safe in the bank—but what if you're not putting your money in a traditional bank? We have more options than ever for storing and managing money. With these choices, however, comes the responsibility of understanding the differences between various financial institutions and platforms. Here are the basics you need to know to navigate the world of traditional banks, neobanks, and fintech platforms—ensuring you make informed decisions about your cash savings.
Traditional banks
Traditional banks are established financial institutions that have been around for decades or even centuries. They typically have physical branch locations and offer a wide range of financial services.
Key characteristics:
FDIC insured (in the U.S.) up to $250,000 per depositor, per bank
Offer savings accounts, checking accounts, loans, mortgages, and investment services
Have physical branches and ATMs
Generally have higher fees and lower interest rates on savings
Strict regulatory oversight
Neobanks
Neobanks are digital-only banks that operate without physical branch networks. They leverage technology to provide banking services through mobile apps and online platforms.
Key characteristics:
Usually FDIC insured through partner banks
Offer checking and savings accounts, often with higher interest rates
No physical branches, but may offer ATM access through networks
Generally have lower fees due to reduced overhead
May offer innovative features like early paycheck access or roundup savings
Fintech platforms
Fintech platforms are technology companies that offer financial services. They may not be banks themselves but often partner with banks to provide certain services.
Key characteristics:
May or may not be FDIC insured (it's important to check)
Often specialize in specific financial services (e.g., investing, money transfer, lending)
Usually operate entirely online
May offer higher returns on investments but with potentially higher risk
Regulatory oversight can vary depending on the services offered
Tips for protecting your cash savings
Wherever you choose to stash your cash, here are some basic tips to make sure you're putting it somewhere safe.
1. Verify FDIC insurance: Always make sure your funds are FDIC insured. This protects you up to $250,000 per depositor, per bank, in case the institution fails. Here's the FDIC’s bank suite for a list of FDIC-insured banking institutions.
2. Understand where you're putting your money: Research how the institution makes money. Be cautious of platforms offering unusually high returns without a clear explanation of how they generate those returns.
3. Read the fine print: Pay attention to fees, account minimums, and any restrictions on withdrawals or transfers.
4. Diversify your funds: Don't keep all your money in one place. Spread your savings across different types of accounts and institutions to minimize risk.
5. Monitor your accounts: Regularly check your accounts for any unauthorized transactions or changes in terms and conditions.
6. Be wary of high-yield promises: If an offer seems too good to be true, it probably is. Be especially cautious of platforms promising significantly higher returns than the market average.
7. Check regulatory compliance: Ensure the institution is properly licensed and regulated. In the U.S., you can check with the FDIC, SEC, or state banking regulators.
8. Understand access to your funds: Know how quickly you can withdraw your money and if there are any limitations or fees associated with withdrawals.
9. Keep records: Maintain detailed records of all your transactions and correspondence with the financial institution.
10. Stay informed: Keep up with news about your chosen financial institutions and the broader financial industry.
The bottom line
By understanding the differences among traditional banks, neobanks, and fintech platforms, you can make informed decisions about where to keep your cash savings. Whatever you choose, look for institutions that use robust security measures like two-factor authentication, encryption, and fraud monitoring. Check reviews and test out their customer service channels before committing your funds. Finally, choose institutions that are clear about their fees, terms, and how they use your money. Remember, the goal is to balance convenience, returns, and security to ensure you always have safe access to your money when you need it.