Online Banking vs Neobanks: Understand FDIC Safety and Protect Your Money
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Today's episode is supported by mint mobile with big wireless providers. What you see is never what you get somewhere between the store and your first months bill. The Price you thought european magically skyrockets with min mobile.

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Mobile 点 com slash smart money， forty five dollar upfront payment required equivalent to fifteen dollars a month new customers on three month plan only speeds slower above forty good device on on unlimited plan additional taxes and fees and restrictions apply see ment mobile for details. Thanksgiving is in ten days. Wall this year has fAllen by and also gone very slowly. If you haven't finalized your menu yet, honestly, you probably not alone. So as but how are you spending your thanksgiving?

Well, this will be my first one in his son. And guess what? What I got invited to my first friends giving, yeah. So I think i'll spend the day house hopping.

I will be attending a friend's giving and just crashing anyone's SE who has food really, but of course i'm going to bring a dish. D chill my crash. How about you .

while I plan to transport a casual across several state lines and hopefully IT arrives in one piece. But the beauty of most casual is that, by design, they already looked like they got shaken up in the car a little bit.

Welcome to nerd while at smart money podcast.

i'm Sarah rapper and i'm eliza's iola this episode .

shown and I answer a listener's question about how to tell a neo bank from a traditional bank and how save your money is if you go the neo bank roup. We even part taken a little real time online research, which is surprisingly a lot more fun than that sounds.

I'm definitely surprised by that too.

I was shocked, but let me tell you, IT was a lot of fun with a great time.

I'm going to take your word for that serum, but i'm still sad dying.

You won't hate IT to you.

Listen to IT. But first, let's talk turkey specifically, how expensive IT can be too by prepare and serve a thanksgiving meal to a table for the hungry guess. And that's just if you're hosting one meal, often times you have guessing at your house for a few night or even weeks too. But honestly, I don't have that experience because my family is scattered around the globe.

And what we also did not factor in the cost of going out to a bar the night before thanksgiving ving to give yourself the emotional fortitude to deal the next few days, especially if you have house guests in your house for weeks. Not OK guys go home. Now, here's a thing, we cannot stop your great aunt from asking you when you'll finally get married or whatever, but we can try to save you some money on the cost of holiday hosting. So at least if you have any awkward conversations, it'll be easier on your budget. So all is that start us off.

Tip number one, host apart, luck, you prepare the main dish, and everyone else brings the sides and the desert. So not only do others share in the cost, but they also share in the labor. Now, I don't know about you all, but after cooking ten dishes all day, i'm usually exhausted and my appetite is gone. So I like this idea.

Yeah, i'm not only is hosting expensive, but IT takes a ton of work. And if you cook the whole meal by yourself, by the time your guest arrive, you will want them to immediately leave, so you can lie down.

Asked me how I know this, sir, I have a confession. I take a secret, lie down. So while everyone's laughing, ha, ha, ha, I think often go my down.

But anyway, plus you get to sample a wide of variety of food with this idea to every guests, will we bring their own holiday traditions to the table by sharing their favorite foods with you? Now, one thing you ve got to make sure of is that everyone exchanges recipes afterwards. And of course, don't forget to take away boxes for your leftovers.

Moving on to tip number two, for anybody hosting overnight guests, don't forget the budget for extra food to have around while they're visiting, especially if any of those guests, their teenagers, because they never stops at eating.

I don't have a teenager yet. I have a seven year old and he never stops eating. So i'm very concerned about my future grocery bill.

Honestly, I an eighteen month old and same, he also never stopped eating. I don't know where IT goes, but goes out of my wallet and into his diaper. Essentially.

I think they have bottom less belly is honestly very confusing. Anyways, it's okay to set some boundary with overnight. Guess that's one thing I want tell. Maybe you can only afford a whole st people for one or two nights instead of a whole week or maybe you can put your guest to work if they're staying with you. You can have them do grocery store brands or help with the cooking.

So not everyone feels comfortable asking us to itching. You know, maybe the culture in your family or your social circle is one where hosting is this solum duty and the guests are royalty in your home. And that's okay.

But if it's hard on you, it's okay to change the culture a little bit within your own home. Asked for some help. You're not running an airbnb.

And you know what? Even airbnb hosts require guests to basically deep, clean the property before ridiculously early check out time. So bring a little bit of that entitled airbnb host energy to this holiday season.

Say again, for the people at the back serum and side notes arbi N B host, you're either charge for professional cleaning or you make the gas clean. You don't get to do both onto tip number three are in some credit card rewards on all of that holiday spending.

Yes, if you use a credit card for how pick one that earns some cash back or travel awards when you spend more than usual at the grocery store, it's like using a coupon and getting some money back.

And just to sprinkle a little t mi, too much information into the conversation always, well, i'm pretty good at, you know, I just got my second travel credit card and i'm going to need to snag my bonus point. So this is a really good tip if you have credit are dead at the moment, that interest your pain is gonna wipe out the value of those rewards that you earn. So it's important to be careful about adding to your existing debt by spending a lot this time of the year.

We have some neural holiday spending data for you. Twenty eight percent of last year's holiday shoppers are still paying off the credit card debt from last year right now. Definitely be careful this time of year, there is so much pressure to spend.

And on gifts, on food, on travel, you want to be cautious, because this is something that can follow you well into the new year and make IT hard to meet your other money goals. So yes, kind of bonuses are awesome, but so is being debt free. That's definitely something to shoot for.

I will throw in a bonus fourth tip for anybody who's feeling pressure to host this perfect holiday gathering that looks good on instagram, but really makes you want to lie down. I heard this term the other day called scrushy hospitality. And I like i'm kind of into IT.

So apparently this cuz name like cash stuffing or one of those other tiktok things where you don't bend over records to clean your home so thoroughly before hosting that IT looks like a staged for an open house, clean your bathroom and don't cook clue in a dirty kitchen. But if your kids toys aren't all put away or there's like unfolded laundry on your bed, it's okay. Have get server and have them see this part of your life because real life is Better than faking IT. If your mother law judgmental SHE can volga laundry for you?

I love that. absolutely. I second that there. I have nothing else to d to that. And i've been practicing that actually because I so obsess with having the house looking Sparkling clean when people come over. But all persons, so no needs to do all that.

So listeners, now we want to hear from you, how are you saving money on holiday expenses sexus? Or leave a voice smell on the nerd hot line at nine zero one seven three zero six three seven three that's nine zero one seven three zero N E R D. Or you can emails us at podcast at nerd wallet home and please .

selling us your holiday hosting harder stories. We might not share money, but I just want to read them. Let's turn now to this episode is money question segment, where we learn how to tell if a bank is actually a bank. Because if IT looks like a duck and cats like a duck, apparently sometimes it's not a duck that's coming up in a moment. Stay with us.

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We're back in answering your real world questions to help you make smarter decisions about your money. This episode question comes from joh sin, who sent us a text message here. IT, is I birds? Last year, my partner and I put the bulk of our savings into a high yields VS account.

We did some research before choosing one and landed on USB as we saw IT on the nerd wallet site as well as forbes and others. IT has been a great financial move for us, and it's been amazing to have our money in an account that is actually accruing interest. That being said, I recently read a new york times article entitled what happens when your bank isn't really a bank and your money disappears.

And IT freak me out a little bit if some of these online banks that failed were advertising themselves as fd I C. insured. And yet IT turns out that they really weren't due to the fine print of where the money is actually being held.

Power customers supposed to protect themselves, as far as I can tell. The u fb. Service is offered under aco bank and is therefore insured through aos banks fc certificate.

But could you have be fail and not be protected if exos stole legitimate bank? Feeling confused and a bit fearful of keeping my savings in an online bank, please help love the pod. Think so much, Justine. To help us answer .

joslin s question on this episode of the podcast, we are joined by nurdle all at banking rider sensor. Tierney Spencer has been covering banking at north wallet for nearly ten years and has written countless reviews of banking products. So he is just the guy to talk with about your question. Justine Spencer, well, come back to smart money.

great.

Be back on. And just before we get into this conversation, just to heads up for listeners that will be discussing a couple companies, U, F, B and chime, which are both in our wallet partners, but that doesn't affect .

how we talk about them. So let's start by giving our listeners a quick recap of the banking drama jostling mentioned in her question. It's a little complicated, but i'll try to keep this brief and hopefully easy to understand.

Essentially a company called synapse financial technologies, which Operated banking software for some neo banks by for bankrupcy earlier this year, synapse, which partner directly with banks to store new bank customers money, didn't keep accurate records of the new bank customers accounts. As a result, the banks would hold customer money on behalf of the neo banks. Don't know whose money is whose.

So people who deposited money at some of these neo banks have been unable to access their money for months now, and it's unclear how we'll get their money back. Many people who use these new banks assume that they were covered by F D I C insurance, like banks are, when in reality, these neo banks only had F D I C coverage through the banks that they partnered with that has LED to some well warranted fear about new online banking services. Anything I missing their response or that's .

an excEllent summary on. I'll just add that this devastate in domino effect that synapse is collapsed caused, has affected only a subset of these so called neo banks and their customers. Many new banks partner with banks directly and don't use synapse rather similar banking software. However, what this disaster has brought to light is that any new bank or other non bank entity that provides consumer banking has more risks than bankers.

We should also help folks understand what a neo bank actually is and how it's different from an online bank or your old fashioned brick mortar bank with branches you could actually walk into. Can you wait out the difference for a sponsor?

Yes, certainly. And that can be hard to tell IT. First, let's start by defining online banks. An online bank is an actual bank, so IT has a license to hold in borrowing money, and that has fd sc insurance directly. It's also known as an internet bank or a direct bank.

But unlike traditional banks, online banks typically don't have physical locations, and their names might be less familiar to you. If you don't spend a lot of time look at a bank online like I do now, a eo bank is not a bank. It's a financial technology company.

The partner is with a bank to offer digital banking accounts. If new bank isn't a word that you've ever heard before, that's OK is not a medium websters dictionary either, but the word has gone traction on line sense. Maybe the mid twenty ten folks might be familiar with some big new make names like charm and Green light as consumer are facing tech platforms.

Neo banks don't hold your money like banks to instead, when you add money to your account, neo banks transferred to their partner banks for them to hold on to IT, usually holding immortal, even thousands of customers money in a single account. That's how you are. Banks checking in, saves accounts, become F, D, S, C, insured.

It's a third party arrangement, which doesn't affect your everyday banking. You can use a debit card or transfer money online the same way as you do at a bank. But if a neo bank goes bankrupt, you aren't guarantee to get your money back because F D S insurance doesn't kick in.

okay? And that's in contrast of the money that I have in my highlight things account at an online bank, which as you mentioned, is fdc ensured. And just so folks know, F D I C insurance covers two hundred fifty thousand dollars per person per account type per fsc insured bank. But with a neo bank that is not the case, even though these companies transfer your money to a partner, which is actually fdc ensured your money is not protected if the neo bank fails, which is very scary. Sponsor.

yes, IT is if a new bank fails, F, D, S, insurance does not kick in you.

Okay, what i'm thinking about is how a lot of these neo banks are pretty new companies. Because of that, they might not have the most stable or proven business models compared to a bank that has been around for two hundred years. And some of the banks we still use today have been around for that long.

So that can make them more likely to fold than a bank that's been around for a while. So does that mean the money that people put in a neo bank is totally vulnerable? Or is there some protection? If the neo bank goes bankrupt.

customers might have to wait for a new bank bankrupt proceedings to recover the money in their deposit accounts. There might be disruptions or shut downs of banking services, direct deposit and debit cards. So if a new bing fails and your best to get paid, for example, your paycheck might be in limbo.

Now, all this said one thing, F, D, S, C proposed a rule this september twenty twenty four to help new bank customers get their money back in a timely manner if the company fails. So more productions could be coming. We don't know yet, but now you might be asking, so when does F D S C insurance protect new bank accounts? The answer is only when the neil bank's partner bank fails.

But even if that happens, a neo bank has step accurate record keeping in order for to recover its customers funds and not create any service disruptions or other money issues are short to wait. To put this, the F T S C only protects banks period, even during the historic bank failures. And twenty twenty three, the customers will checking and savings accounts at those banks has continuous access to their money, and they didn't lose a panic. The F T S C swiped in quickly for a silicon valley bank and first republic bank and the other banks to go Operations, and eventually sold each bank to a hell bank, and their customers money ultimately got moved to that new bank.

So IT seems clear that some folks might have a hard time determining if the money they put into a financial institution is actually covered by fy insurance. So how can someone really be confident that they are insured? Like our listener mentioned, USB direct is that institution covered by fdc insurance.

First starters, the clearest way through this very markey area of banking is to know a bank from a non bank. The words F, D, I, C, insured account don't automatically mean your money back here and tied in this day and age sense. I research online banks, any banks, all the time. Let's make this interactive activity where you say, and sean will go to a financial situtions website and pret the fine prints to figure out whether it's a bank or not a bank. Are you ready?

Let's do IT. okay. I do love a few trip, Spencer, especially one as nerdy as expLoring the fine print of a nail. Bk.

I do this all the time for credit card. Ds, so this definitely in my will.

have recking my nuckles getting ready here.

Let's take the listened back as an example. You have be direct on the website, home page or any signs to indicate this is a bank.

I'm going to do a finder place for the word bank. There are twelve mansions, often times referring to mobile banking, but if you go to the bottom, the fine print IT as bank products and services are offered by exos bank.

I'm also saying that he says deposits fdc ensured in the middle of the page, and there is a big banner on the page counting their F, D, I, C coverage with a picture of a dollar sign honor shield. So they really wanted to know that they are protecting you are money. They got the symbolism there.

yeah. So the middle page is a little unique for this institution. But yes, the bottom of this website is that is where you usually go as your typical starting location for where the fine print will almost certainly list of bank name and F D S C information that is confusing because you have be direct is not the name of the bank that's the member of, yes, see. So do you think it's .

a bank right now leaning on? no.

I'm a salad, maybe. So let's see. IT says a, for more information, read our F, D, I C. Notice clicking that really .

going down the rabbit. Here.

everyone. And here we are. Another website we are at, access spk, which we had mentioned a few times.

IT says access bank is backed by the federal deposit insurance corporation, which guarantees the safety of deposits in member banks. Are currently, the banking brands Operated by access bank include U, F, B direct. So I think that U, F, B is a bank.

You be correction. Banks can have multiple brands or divisions and they all have F, T, S, C, insurance. In another place that can be useful to check for is and about us page and you have b dix case. There's a small link to about us on the bottom of home page when you click on that, you'll go to a page that says you have been direct a division of atos bank.

I'm going to be honesty ensure I was not one hundred percent confidence. My answer there, as you could maybe tell. So how else can people that if an institution they want to put their money into is actually fd I C insured or not?

If you have xiety about this type of stuff like me, and don't want to trust the institutions website alone, check out the F T S C dog of data tool called bank find. This online directory can help you find F, D, S C insure institutions, but I will be the first to admit it's not the easiest tool to use.

You won't find banks like you have be direct, because only parent banks are listed, not divisions, and a bank might have a more efficient name than you used to call IT. Chase bank, for example, shows up in this tool as jp morning chase bank. Come a national association, the mortal banks, with the same name out there as well. But what you can do is typing the bank name as best as you can, and then searched the listings for the primary website provided and confirm as the what bank website you use, or in the case of bank divisions, confirm the parent bank website. And last IT for me, if you see the word direct in the name of a financial institution like U F B direct, popular direct or redirect, it's a good indicator that is a bank, because direct bank is an industry turn foreign online bank OK.

that is all going to know. So for the sake of our listener joo selling question, this would mean that the funds that they have in their u fb saving ings account R F D S T insured. So Justine, good news.

So we've confirmed that this particular institution is a bank, and we've also learned a little bit about how to tell if other institutions are banks if it's not immediately clear, how would you confirm a neo bank?

Reading the websites, fine print is, again, the answer typically see text such as institution name is a financial technology company, not a bank, bank and services provided by, and then you see a bank name usually followed by member of D. S C.

Since we're already on this magical bus banking adventure, maybe we can also check out a neo bank's website too, just to see what he looks like. How about time since you've mentioned them earlier or sensor?

sure. Let's get note.

So i'm there. And what i'm seeing is, right, the top IT says, the number one most loved, banking APP, but then scrolling, looking for fine print, lots of nice, modern, graphic mEllen nial oriented images. Let's see.

Let's see. Wow, so many images here. Then at the bottom, IT says, tim is a financial technology company, not a bank.

Banking services are provided by the bank corp. K, N, A or stride bank N A members. Fd, I, C.

So you're getting mixed messaging here. IT says the number one most love banking APP. But then that says it's not a bank. With this mixed messaging, I can see why people would have a really hard time parsing between a neo bank and an online bank.

And so do you think it's wise for people to just avoid using neo banks and instead of for r, an online bank instead? Or do you still see a use case for neo banks given the risk?

I'd say be aware of the risks of a neo bank, but also prioritize what you need in your banking. New banks can be a lifeline for some people, especially low income folks and others who might have a hard time at traditional banks. Banks can hit you with monthly maintenance and over drapes for not having enough money and ultimately kick you out.

New banks, however, are easy to sign up for and use, and many of their accounts don't have Mandatory fees. There are also early adopters of new bank and technology. Sometimes new banks have features such as early direct deposits or no fee overdraft services that are available years, sometimes before online or traditional banks adopt them.

In fact, new banks and other hintock apps, early direct deposit services played a key role in the roll out of covered in nineteen stimulus checks. These pinch firms are able to take more risks and move faster into new services and consumer segments than banks generally can. For example, banking for kids and teens with the legs of Green light and go Henry by a corns are combining debit cards with digital short charts and financial literary tools for kids and parents to have a more customize experience in a bank typically offers.

And just so focus to know, acorns is a nearby all partner, but as ever, that does not affect how we talk about them. So IT spend for any other thoughts for folks who want to take advantage of the new banking products while also protecting their cash?

Yeah, new banks have a role in the bank in industry. Just be mindful of the risks when things go wrong. The syn nath's collapse is an extreme cautionary tale that doesn't reflect how many new banks Operate, which is with their own bank partnerships.

What tends to happen when the new bank business is not working out, in my experience covering them for a few years is that the new bank will announce that is closing and give usually a months notice to customers to withdraw funds. For folks who missed that memo, the new bank typically miles out checks of remaining baLances to customers, which addresses on file. Now I would say consider new banks if you need a way to spend and save money. That's an alternative to banks, especially if you've been burned by banks before or once. Certain bank in tools that you can't find that a Normal bank, online banks are no doubt safer, as well as credit unions, which have equivalent F, T, S, insurance called N, C, U, A insurance to banks know what type of banking institution you're joining and how your money is protected ahead of time.

Our sponsor, this has been such an educational experience. Thank you for joining us today and taking us on this journey through the world of banking or in some cases, is not really .

banker course.

All right, well, that's all we have for this episode. Remember a listers that we are here to answer your money questions. So turn to the nerd's and call or text us your questions at nine o one seven three zero six three seven three is nine o one seven three zero N E R D.

You can also e mail us at podcast at nj docs, visit norroway docs flash podcast for more input on this. So and I remember to follow rate and review us for ever. You're getting this podcast also. You can follow the show on your favorite podcast, APP, including spotify, apple podcast and I heart radio, to automatically down the new episode.

And here's our brief disclaimer. We are not financial or investment advisers. This nurse in foes provided for general educational and entertainment purposes and may not apply to your specific circumstances.

And with that said, until next time, turn to the nerds.