Are Online Savings Accounts FDIC Insured?

How to confirm whether an online bank is FDIC insured

A person makes an online deposit.
Photo:

Ezra Bailey / Getty Images

Online banks provide many of the same products and services as traditional banks, such as savings accounts and loans. They also usually offer the same Federal Deposit Insurance Corporation (FDIC) protection for your deposits..

Consumers who use online savings accounts often enjoy lower fees and higher interest rates than many accounts from traditional banks. However, they do have downsides to consider. For example, online banks and banking platforms lack tellers and service representatives that can provide in-person service.

Learn how online banks and banking platforms work, more about their pros and cons, and how to ensure that your savings account is FDIC insured if you deposit money in an online bank.

Key Takeaways

  • Many online banks offer the same FDIC insurance as traditional banks.
  • FDIC insurance protects up to $250,000 per account holder, so a joint account would be insured for up to $500,000.
  • You can use the FDIC’s BankFind Suite to determine whether an online bank is FDIC insured.
  • Many online bank platforms are backed by regional banks that are FDIC insured.
  • The National Credit Union Administration (NCUA) provides accredited credit unions the same protections as the FDIC provides banks.

How Do Online Banks Work?

Personal accounts with online banks such as Ally and SoFi, or digital banks, and online bank platforms such as Chime and Greenwood provide many of the basic services as traditional banks. That includes savings accounts, paycheck deposits, money transfers, and check and debit card use. Some digital banks and banking platforms provide loans to qualified lenders or offer home mortgages.

Customers who open online savings accounts can access their account and make transactions through an app or a website. Many digital banks issue customers debit cards that can be used to make deposits or withdrawals at ATM machines. Service fees may be attached to these transactions, so read the bank’s guidelines carefully.

Online banks usually can offer higher interest rates because they do not have the overhead costs of operating physical branches, which includes paying tellers and other employees as well as the cost of maintaining a building. So they can pass the cost savings along to customers.

Note

Many online banks also offer services with no monthly fees, no overdraft charges, and no minimum account balances.

Example of Online Savings Account

Some online banks technically are not banks but financial service companies, or banking platforms, that provide savings accounts and other services backed by regional banks or other financial institutions. They also provide many of the same protections. One example is Yotta, an online banking platform that partners with Evolve Bank & Trust.

“Whenever someone creates an account with Yotta, we create an account on their behalf at one of our partner banks,” Yotta co-founder and CEO Adam Moelis told The Balance in a telephone interview. “It would be the same thing as if you opened an account directly with that bank.”

Note

As a banking platform backed by Evolve Bank & Trust, Yotta can offer online savings accounts with FDIC insurance of up to $250,000 per account holder.

Moelis said Yotta’s target audience is moderate- to low-income earners under age 40 who are attracted to Yotta’s sweepstakes-like approach to paying interest. In addition to a fixed APY of 0.2% as of December 2022, Yotta has weekly drawings for additional cash payouts for savings account interest. All customers are eligible to earn thousands of dollars in prize money. There are no monthly fees or processing fees if you have an account balance of more than $5.

In comparison, Wells Fargo’s Way2Save savings account offered an 0.15% APY and Chase offered 0.01% APY as of December 2022.

How Does FDIC Insurance Work for Online Savings Accounts?

Many people wonder whether their money will be safe in an online savings account. Accounts at most traditional banks are FDIC insured, which protects individual account holders in the event the financial institution fails.

Note

Deposits at FDIC-insured banks are insured for up to $250,000 per depositor, per FDIC-insured bank, per ownership category. That means a married couple’s joint account would be insured for up to $500,000.

The majority of online banks are also FDIC insured. As you weigh the pros and cons of online banking, make sure any online bank you are considering is FDIC insured. Online banks usually prominently display their FDIC-insured status on their website to reassure depositors. You can also search the FDIC’s BankFind Suite to search for a bank by name to learn whether it is FDIC insured. You don’t have to apply for FDIC insurance. Coverage is automatic.

FDIC deposit insurance covers checking and savings accounts, money market accounts, certificates of deposit, cashier’s checks, money orders, and other items issued by the bank. It does not cover stock or bond investments, mutual fund investments, crypto assets, life insurance policies, annuities, or municipal securities.

National Credit Union Administration Protection

If you open an account with an online credit union rather than an online bank, your money will likely be protected by the National Credit Union Administration (NCUA). Created by the U.S. Congress in 1970, the NCUA regulates federal credit unions and provides the same protections for depositors that the FDIC provides, or up to $250,000 per depositor.

The Bottom Line

Online banks can frequently offer higher interest rates to depositors because they have lower overhead costs, but it is important to read the fine print for service charges and other fees that could quickly add up and reduce interest earnings.

Frequently Asked Questions (FAQs)

Are online banks safe?

You can use the FDIC’s BankFind Suite to search for a bank by name to determine if it is insured. In terms of online security, ensure that an online bank provides advanced protection against hackers. This may include encryption and two-factor authentication required to sign into your account.

What is the FDIC-insurance limit on an online bank account?

Deposits at FDIC-insured banks are insured for up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Insurance covers principal and any interest accrued or due to the depositor through the date of default.

Why do online savings accounts earn more interest?

Online banking platforms can offer higher interest rates to account holders because they do not have the overhead costs of operating brick-and-mortar branches. Many also do not spend as much on marketing as traditional banks.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. FDIC. “FDIC Consumer News. Is Digital Banking for Me?

  2. FDIC. “Deposit Insurance FAQs.”

  3. Yotta. “Yotta Prize-Linked Savings.”

  4. Wells Fargo. “Savings Accounts and CD Rates.”

  5. Chase. “Chase Savings Interest Rates.”

  6. FDIC. “Deposit Insurance at a Glance.

  7. NCUA. “Deposits Are Safe in Federally Insured Credit Unions.”

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