Avoid Rates from NeoBanks and Fintechs that Look Too Good to Be True

Rates on savings products and CD products are incredibly low and have been for several months now. These are the times when people may be apt to fall for scams and take unnecessary risks. Don’t do it.

I made this same warning in 2014 when rates were last this low. You can read the article I wrote then about outfits offering brokered CD rates that were well above prevailing rates here.

On BestCashCow, you can find and compare the best savings offered today by online banks, by local banks and by credit unions. There may be very slightly higher rates that are offered by “neobanks” (which I define as startups that offer some sort of payment or cash management solutions that a bank may not offer) and by “fintechs” (which may be offering other financial products (such as trading, investing or roboinvesting products). None of these products are FDIC insured. Their products are unproven and simply not worth the risks. I don’t even think they should be called savings accounts. I think they should be called savings account alternatives and I think that is generous.

I first suggested people not run into neobanks here. I’ve had discussions with so-called fintechs about their savings products and resolved not to list them on BestCashCow or its affiliates because these institutions are not offering the liquidity in their savings products that a savings product requires. and they themselves are not FDIC insured and they lack the transparency to give customers the comfort that they require even if their cash is actually to be held at one or more designated partner banks. I specifically suggested people not run into some of these here.

My concerns about these types of savings alternative accounts were realized in today’s news when the Federal Trade Commission took action against a company called Beam Financial. It seems that folks had put money in this neobank or fintech or whatever it is (in this case, it may not have been more than a mobile app) in order to earn 1% and then were unable to get their money back. Their three partners, including a bank, brought suit in order to find out who actually owned the money (meaning it may never have been FDIC insured since the money was not tied to a depositor’s name and social security number).

You can learn more about this here. It looks like most of the depositors interviewed had only put small amounts into their accounts and the entire amount at stake may not have been much more than $2.40 million. Yet, it is disconcerting to know that some similar organizations are out there actively soliciting new accounts up to $1 million.

Bottom line: Do not step out of FDIC coverage or even risk stepping out of FDIC coverage for a few extra basis points. Always stay in FDIC insured and NCUA insured institutions and maintain relationships with them without intermediaries. Learn more about FDIC and NCUA coverage and limits here.