Are Online Banks FDIC Insured?

Federal Deposit Insurance Corp. (FDIC) insurance is an essential parameter to look for when comparing banks. This insurance protects account holders if the bank goes under. While the FDIC insures big-name financial institutions, it’s easy to wonder whether the same rules apply to online banks. Many online banks are insured by the FDIC, but not all of them have this golden standard. This guide will walk you through how to tell whether an online bank is FDIC-insured and how this critical coverage works.

How Do Online Banks Operate?

Online banks operate similarly to traditional banks but with less overhead. You can find the same banking services if you look at online institutions. You can create bank accounts, borrow money and get high-yield savings accounts with online banks. Some online banks have fewer choices than traditional banks, while other online banks have more to offer than their peers. Almost every online bank also has customer support with clearly laid out hours and contact methods. Many online banks have email, live chat and phone support.

FDIC Insurance Coverage for Online Banks

FDIC insurance is critical because it protects consumers from defaults, but what exactly does it cover? Here’s what you need to know about FDIC insurance coverage for online banks.

Eligibility of Online Banks for FDIC Insurance

Online banks have the same eligibility requirements as traditional banks. The FDIC sets risk-management guidelines that limit a bank’s leverage and has other rules in place. Banks insured by the FDIC also go through bank examinations to ensure they are in compliance.

Limits and Extent of Coverage

The FDIC insures up to $250,000 per depositor per ownership category. If the depositor has an individual checking account and a joint savings account, both accounts get coverage up to a total of $250,000 per insured bank. 

Joint Accounts and Coverage Considerations

The FDIC gives additional coverage for joint accounts. Each person in the joint account will be insured for up to $250,000. If two people are in the joint account, they will each be insured for up to $250,000, which means the total FDIC insurance is $500,000 for this account. The insured money gets evenly split among the account holders.

Coverage for Different Types of Accounts

The FDIC provides coverage for several types of bank accounts, such as checking, savings, certificates of deposit (CDs) and money market accounts. The coverage limit is $250,000 for each of these accounts.

How to Know Whether Your Online Bank is FDIC-Insured

It’s important to check whether an online bank is FDIC-insured before creating an account and depositing money. Here are some ways to tell whether an online bank is FDIC-insured.

Verifying FDIC Membership of an Online Bank

The FDIC makes it easy to find banks it insures. You can use the FDIC’s BankFind tool to verify the online bank’s status or contact the online bank directly.

Display of FDIC Logo and Membership Details

Many online banks prominently display the FDIC logo to indicate their accounts are insured. This part of the website contains more details about the bank’s FDIC insurance. Some online banks are fintech companies that obtain FDIC coverage through their partnership with another bank.

Using FDIC Resources for Confirmation

While most online banks presenting themselves as FDIC members are legitimate, some scammers exist. You can use the FDIC’s resources to confirm a bank’s status. You can use the BankFinder tool, the FDIC’s education materials or give it a call.

Red Flags To Watch for When Selecting an Online Bank

Some online banks present themselves as FDIC-insured even if they do not have a relationship with the FDIC. Detecting red flags can keep your money safe. The biggest red flag is if the bank is not listed as a member of the FDIC. Some fintech companies are not listed as FDIC members but use another bank for their FDIC coverage. Under this scenario, you should research the partner bank and verify whether the partnership is intact.

Another red flag is if the online bank is ambiguous about its partnership with the FDIC or doesn’t make much of an effort to promote it. Some online banks list their FDIC affiliation at the bottom of the web page, which is fine, but it shouldn’t take long to find. You can use the word search feature to find any references to the FDIC on an online bank’s web page.

Benefits and Protections of FDIC Insurance

There are no disadvantages for a consumer to filter their searches for banks that offer FDIC insurance. The advantages are overwhelming — not just for what they offer but also because they are free and easy to obtain.

Protection of Deposits Against Bank Failures

If the bank goes under, you do not have to worry about losing your hard-earned cash. The FDIC insures your funds up to $250,000 per bank. You don’t have to start from scratch if the bank you use collapses.

Peace of Mind and Consumer Confidence

You can enjoy peace of mind knowing your funds are safe. This safeguard can make you feel more confident about making purchases, knowing you have the funds to back up your spending.

Limitations and Exclusions To Be Aware Of

The FDIC limits its coverage to $250,000 per depositor per bank. The corporation only insures funds lost because of a bank collapse. If a hacker steals funds from your account, the FDIC does not restore your account. Other laws address that scenario, and you should reach out to your bank as soon as you suspect fraud.

Get the Financial Coverage You Deserve

The FDIC protects bank accounts to give consumers and businesses the confidence to store their cash in bank accounts. FDIC insurance should be a requirement for your online banking search. If a bank does not have this coverage, put your funds somewhere else. Many banks are insured by the FDIC, and it is an essential protection.

Frequently Asked Questions