How to Decide Whether to Invest in a Bank, Neobank or Fintech Platform
We’ve all wondered if our money is safe in the bank , but what if you don’t put your money in a traditional bank? We have more options than ever for storing and managing money. However, this choice comes with the responsibility of understanding the differences between different financial institutions and platforms. Here are the basics you need to know to navigate the world of traditional banks, neobanks, and fintech platforms so you can make informed decisions about your money savings.
Traditional banks
Traditional banks are established financial institutions that have been around for decades or even centuries. They usually have physical branches and offer a wide range of financial services.
Key Features:
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FDIC insurance (in the US) up to $250,000 per depositor per bank.
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Offer savings accounts, checking accounts, loans, mortgages and investment services.
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Availability of physical branches and ATMs.
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Typically have higher fees and lower interest rates on savings.
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Strict regulatory oversight
Neobanks
Neobanks are digital-only banks that operate without physical branch networks. They use technology to provide banking services through mobile applications and online platforms.
Key Features:
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Typically the FDIC insures through its partner banks.
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Offer checking and savings accounts, often with higher interest rates.
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There are no physical branches, but ATMs can be accessed online.
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Typically have lower fees due to lower overhead costs.
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May offer innovative features such as early access to salary or savings opportunities.
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 Features:
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May or may not be FDIC insured (important to check)
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Often specialize in specific financial services (e.g. investing, remittances, lending)
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Usually work completely online
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May offer higher investment returns, but with potentially higher risk.
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Regulatory oversight may vary depending on the services offered.
Tips on how to protect your cash savings
Wherever you decide to stash your money, here are some basic tips to help you keep it safe.
1. Check your FDIC insurance. Always make sure your funds are FDIC insured. This will protect you up to $250,000 per depositor at each bank if the institution fails. Here is the FDIC Banking Packet for a list of FDIC-insured banking institutions.
2. Understand where you are investing your money. Research how the institution makes money. Be wary of platforms that offer unusually high profits without a clear explanation of how they generate them.
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. Control your accounts. Check your accounts regularly for unauthorized transactions or changes in terms.
6. Be careful with promises of high returns . If an offer seems too good to be true, it probably is. Be especially wary of platforms that promise significantly higher returns than the market average.
7. Check Regulatory Compliance: Make sure the facility is properly licensed and regulated. In the US, you can contact the FDIC, SEC or state banking regulators.
8. Understand access to your funds: Find out how quickly you can withdraw your money and whether there are any restrictions or fees associated with withdrawals.
9. Keep Records: Keep detailed records of all your transactions and correspondence with the financial institution.
10. Stay Informed: Stay up to date with news about your chosen financial institutions and the financial industry as a whole.
Bottom line
By understanding the differences between traditional banks, neobanks, and fintech platforms, you can make informed decisions about where to store your cash savings. Whatever you choose, look for institutions that have strong security measures in place, such as two-factor authentication, encryption, and fraud monitoring. Check reviews and try out their customer service channels before investing. Finally, choose institutions that are clear about their fees, terms and how they use your money. Remember, the goal is to balance convenience, profitability and security so that you always have secure access to your money when you need it.