https://www.nytimes.com/2024/07/09/business/synapse-bankruptcy-fintech-fdic-insurance.html Skip to contentSkip to site index Business Today's Paper Business|What Happens When Your Bank Isn't Really a Bank and Your Money Disappears? https://www.nytimes.com/2024/07/09/business/ synapse-bankruptcy-fintech-fdic-insurance.html * Share full article * * * 347 Advertisement SKIP ADVERTISEMENT You have a preview view of this article while we are checking your access. When we have confirmed access, the full article content will load. Supported by SKIP ADVERTISEMENT What Happens When Your Bank Isn't Really a Bank and Your Money Disappears? For unsuspecting depositors of online financial start-ups, the unraveling of a little-known intermediary has separated them from their life savings. Listen to this article * 7:28 min Learn more * Share full article * * * 347 An illustration shows the facade of a building with a colonnade and a money sign crumbling from one corner, surrounded by clouds and a large computer mouse cursor. Credit...Filip Frohlich Rob Copeland By Rob Copeland Rob Copeland covers Wall Street and banks but has never before encountered this type of unusual conundrum. July 9, 2024Updated 5:16 p.m. ET For close to a century, putting your savings into a federally insured bank has been a sure thing: If the institution fails, up to $250,000 of your money will be protected. What if it isn't anymore? The promise of bank insurance -- a tenet of U.S. consumer protection since the Great Depression -- is now being tested by a crisis swirling around online-only lenders with hundreds of millions of dollars of deposits between them. Customer accounts have been frozen, preventing people from cashing out their life savings. Most depositors have little clue where their money has gone, and whether they will get any of it back. The turmoil was set off this spring with the bankruptcy of Synapse Technology, the kind of company you've probably never heard of unless you suffered through all the fine print of your account statements. It operated banking software for fast-growing online lenders with names like Juno, Yieldstreet and Yotta. Backed by some of Silicon Valley's bigger venture capitalists, the start-ups offer accounts that charge lower fees and pay far higher interest rates than traditional brick-and-mortar banks. Their slick websites advertise insurance from the Federal Deposit Insurance Corporation, the U.S. agency that pledges to pay back lost funds. Unlike stodgy brick-and-mortar institutions, this group's pitch is that banking can be downright fun. "Play Games. Win Big," says Yotta, which features a lottery-like system that boosts returns for some lucky customers. This model is increasingly popular -- especially among 20- and 30-somethings -- and legal. The rub is that although these start-ups may look and feel like banks, they are not. They simply collect customer money and pass it through financial technology intermediaries like Synapse to old-school banks that may have as few as one physical branch and minimal online presence. The banks, including Evolve Bank & Trust of West Memphis, Ark., according to filings, are the ones that actually manage the depositors' money. We are having trouble retrieving the article content. Please enable JavaScript in your browser settings. --------------------------------------------------------------------- Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times. --------------------------------------------------------------------- Thank you for your patience while we verify access. Already a subscriber? Log in. Want all of The Times? Subscribe. Advertisement SKIP ADVERTISEMENT Site Index Site Information Navigation * (c) 2024 The New York Times Company * NYTCo * Contact Us * Accessibility * Work with us * Advertise * T Brand Studio * Your Ad Choices * Privacy Policy * Terms of Service * Terms of Sale * Site Map * Canada * International * Help * Subscriptions * Manage Privacy Preferences