Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Beware of nonbank fintech apps promising good yields. These fintech intermediaries may only do recordkeeping for gross funds deposited with them but hold by them at the FDIC-insured banks. The customers aren't connected directly with those FDIC-insured banks (or, those banks aren't aware of the individual depositors), but they are confused by misleading references to FDIC insurance. So, when the money goes missing, the chase for money starts and customers, fintech, banks point fingers at each other. Well, this isn't hypothetical - Yotta-Synapse have managed to lose $109 million of customers' money. Ken Tumin/X https://x.com/KenTumin/status/1806063471668375680 CNBC https://www.cnbc.com/2024/06/21/synapse-collapse-nearly-109m-in-yotta-customer-deposits-vanish.html https://synapsefi.com/solutions/neobanking
ISTM that this is a risk whenever a third party is involved. I don't think the problem is with the institutions (fintechs) sweeping money into banks. It's that a third party (here, Synapse) is serving as the intermediary between the fintech and the banks.
Even Charles Schwab & Co. (Schwab brokerage) isn't a bank but a front end for sweeps into separate (but affiliated) banks, including Schwab Bank and TD Bank. However, here there isn't a third party involved, the brokerage deals directly with the banks.
Fidelity is not a bank and has PNC Bank issue their debit cards. In turn, apparently PNC Bank contracts out to BNY Mellon Investment Servicing Trust Company to service the transactions.
Nonbank fintech apps Yotta and Juno provided customers false or misleading assurances that their money was safe with FDIC insurance. Synapse handled that money as intermediary between Yotta, Juno and the FDIC insured banks (Evolve, etc). But now lot of that money is missing or unaccounted for and the depositors are stuck. As bankrupt Synapse did customers’ recordkeeping, the only party that the banks knew was Synapse, and whatever money it deposited with the banks, that is FDIC insured up to institutional pass-through limit. Evolve was under a Fed watch and was in the process of winding down its relationship with Synapse. So, there was some additional transitional money that Synapse was looking a banking home for; it probably kept this money temporarily in its corporate accounts, but those are now subject to the claims of its creditors. The failure of an intermediary (e.g. Synapse) isn’t covered by FDIC.
Other nonbank fintech mentioned are Chime and Current.
A man asks a woman if she would be willing to sleep with him if he pays her an exorbitant sum. She replies affirmatively. He then names a paltry amount and asks if she would still be willing to sleep with him for the revised fee. The woman is greatly offended and replies as follows:
She: What kind of woman do you think I am? He: We’ve already established that. Now we’re just haggling over the price.
Money that you hand to institutions that sweep it into banks, regardless of whether they do that themselves or use a third party like Synapse, is not FDIC insured until it reaches the bank. While third parties have additional potential problems, the fact is that cash at Yotta or at a brokerage is not FDIC insured 100% of the time.
How big an insurance gap is that? Doesn't it depend on the infrastructure used (i.e. third party)? Now we're just haggling over size. Regardless of how big an insurance gap there is (hours, weeks, whatever), money invested via non-banks (i.e. FDIC insured sweep deposits, or more generally "brokered deposits") is not fully FDIC-insured; not always. People want zero risk. That's not what they're getting with any sweep account.
E*Trade, with its Extended Sweep Deposit Account (ESDA) program has been more forthcoming than most with its disclosure:
Until my funds are received in appropriate form and processed by the Program Banks, I understand that my funds may not be FDIC insured. For example, after my excess funds are swept out of my brokerage account carried at Securities, my funds may be held at an intermediary bank intraday, overnight, or over the weekend to the next bank business day or longer before being actually received by the Program Banks.
Initial reports suggested that the problem was not that the cash was gone, but that it was "misplaced", i.e. the institutions couldn't sort out which investors owned how much cash. Or even which banks had the cash.
Synapse and Evolve [Bank] disagree on how much of Yotta’s funds are held at Evolve, and how much are held at other banks that Synapse worked with.
I haven't seen mentioned (perhaps I've missed this) that client-facing institutions (whether Yotta or Schwab or whoever) are supposed to keep customers (not banks) informed about where their money is. This is so that customers can keep track of how much they have deposited at any given bank to make sure they don't exceed an FDIC insurance limit.
If the customers were kept informed about their money, then ISTM that reconstructing Synapse's ledgers (which reputedly mismatch those of Evolve) should be straightforward. If the customers were not kept informed, then this would seem to be a prima facie case against Synapse. Not that that helps customers since Synapse is in bankruptcy and uninsured.
Adding money to your savings account can sometimes seem like a chore more than anything else. But what if topping up your savings meant you could win weekly cash prizes?
That's the exact model that Yotta is using to make saving money more exciting. With its savings account, you can win weekly bonus cash or even grand prizes like a new Tesla. And with no minimum balance requirements and numerous ways to earn tickets for its weekly draw, it's easy to get started.
As Calvera says in The Magnificent Seven:
If God didn't want them sheared he would not have made them sheep.
Beware of nonbank fintech apps promising good yields.
What did these people think they were getting from Yotta that they couldn't get from an actual bank?
It turns out that there's a lot to unpack here. I had not taken a look directly at Yotta. Not surprisingly, it's a "gamified" site designed to attract young customers. But surprising (at least to me) is its banking arrangement.
Unless I'm missing something, it pays just a 0.10% base rate. Though because it offers chances of winning money, its effective average rate is closer to 2.5% depending on where/when you read figures. So what one gets is the thrill of the chase in addition to (on average) a halfway decent rate of interest.
Further, it looks like a customer's agreement is directly with Evolve Bank (and perhaps Synapse), not with Yotta. So technically, the customers may in fact be getting their services from an actual bank after all!
Synapse Financial Technologies, Inc. (“Synapse”) is providing this Agreement to you on behalf of Bank. ...
This Consumer Interest Checking Account Agreement (this “Agreement”) governs the interest-bearing consumer demand account (the “Account” or “Interest Checking Account”) made available to you by Evolve Bank & Trust (“Bank”), [member FDIC] in partnership with Synapse, as a technology service provider of Bank. ... Access ... is available only through ... Yotta.
As to watching out for nonbank fintech apps promising good yields - Yotta's promised yield is okay but not great. In contrast, Raisin (formerly SaveBetter) appears to be a well established fintech though which one can get better rates from specific banks than one would get by going directly to those banks. Much as one can sometimes get better CD rates from a bank by going through a broker than going directly to the bank.
I agree that caution is warranted, as it is for any financial investment. But there doesn't seem to be any substantial additional risk in using Raisin rather than going directly to the banks it works with. While I haven't used it, it looks like a good source of no-penalty CDs.
Comments
ISTM that this is a risk whenever a third party is involved. I don't think the problem is with the institutions (fintechs) sweeping money into banks. It's that a third party (here, Synapse) is serving as the intermediary between the fintech and the banks.
Even Charles Schwab & Co. (Schwab brokerage) isn't a bank but a front end for sweeps into separate (but affiliated) banks, including Schwab Bank and TD Bank. However, here there isn't a third party involved, the brokerage deals directly with the banks.
https://www.schwab.com/legal/cash-features-disclosure-statement
Here's a piece about Fidelity not being responsive to theft via debit cards. (It references the Synapse / Evolve Bank miscue.)
https://www.mymoneyblog.com/fidelity-atm-debit-card-warning-fraudulent-transactions.html
https://www.cnbc.com/2024/07/02/synapse-fintech-fdic-false-promise.html
Nonbank fintech apps Yotta and Juno provided customers false or misleading assurances that their money was safe with FDIC insurance. Synapse handled that money as intermediary between Yotta, Juno and the FDIC insured banks (Evolve, etc). But now lot of that money is missing or unaccounted for and the depositors are stuck. As bankrupt Synapse did customers’ recordkeeping, the only party that the banks knew was Synapse, and whatever money it deposited with the banks, that is FDIC insured up to institutional pass-through limit. Evolve was under a Fed watch and was in the process of winding down its relationship with Synapse. So, there was some additional transitional money that Synapse was looking a banking home for; it probably kept this money temporarily in its corporate accounts, but those are now subject to the claims of its creditors. The failure of an intermediary (e.g. Synapse) isn’t covered by FDIC.
Other nonbank fintech mentioned are Chime and Current.
Open BNN link https://www.bnnbloomberg.ca/business/2024/07/16/a-fintechs-collapse-raises-questions-about-a-hot-business-model/
Ken Tumin X/Twitter https://x.com/KenTumin/status/1813643189032828998
An old joke, misattributed to Winston Churchill comes to mind (I'll connect the dots shortly): Money that you hand to institutions that sweep it into banks, regardless of whether they do that themselves or use a third party like Synapse, is not FDIC insured until it reaches the bank. While third parties have additional potential problems, the fact is that cash at Yotta or at a brokerage is not FDIC insured 100% of the time.
How big an insurance gap is that? Doesn't it depend on the infrastructure used (i.e. third party)? Now we're just haggling over size. Regardless of how big an insurance gap there is (hours, weeks, whatever), money invested via non-banks (i.e. FDIC insured sweep deposits, or more generally "brokered deposits") is not fully FDIC-insured; not always. People want zero risk. That's not what they're getting with any sweep account.
E*Trade, with its Extended Sweep Deposit Account (ESDA) program has been more forthcoming than most with its disclosure: Initial reports suggested that the problem was not that the cash was gone, but that it was "misplaced", i.e. the institutions couldn't sort out which investors owned how much cash. Or even which banks had the cash. https://www.cnbc.com/2024/06/01/synapse-bankruptcy-yotta-accounts-locked.html
I haven't seen mentioned (perhaps I've missed this) that client-facing institutions (whether Yotta or Schwab or whoever) are supposed to keep customers (not banks) informed about where their money is. This is so that customers can keep track of how much they have deposited at any given bank to make sure they don't exceed an FDIC insurance limit.
If the customers were kept informed about their money, then ISTM that reconstructing Synapse's ledgers (which reputedly mismatch those of Evolve) should be straightforward. If the customers were not kept informed, then this would seem to be a prima facie case against Synapse. Not that that helps customers since Synapse is in bankruptcy and uninsured.
What did customers of yotta expect to get out of placing their money there? Miror. Ergo ego google
Dinky linky. As Calvera says in The Magnificent Seven:
What did these people think they were getting from Yotta that they couldn't get from an actual bank?
It turns out that there's a lot to unpack here. I had not taken a look directly at Yotta. Not surprisingly, it's a "gamified" site designed to attract young customers. But surprising (at least to me) is its banking arrangement.
Unless I'm missing something, it pays just a 0.10% base rate. Though because it offers chances of winning money, its effective average rate is closer to 2.5% depending on where/when you read figures. So what one gets is the thrill of the chase in addition to (on average) a halfway decent rate of interest.
Further, it looks like a customer's agreement is directly with Evolve Bank (and perhaps Synapse), not with Yotta. So technically, the customers may in fact be getting their services from an actual bank after all!
Here's the sample customer agreement. It starts: As to watching out for nonbank fintech apps promising good yields - Yotta's promised yield is okay but not great. In contrast, Raisin (formerly SaveBetter) appears to be a well established fintech though which one can get better rates from specific banks than one would get by going directly to those banks. Much as one can sometimes get better CD rates from a bank by going through a broker than going directly to the bank.
I agree that caution is warranted, as it is for any financial investment. But there doesn't seem to be any substantial additional risk in using Raisin rather than going directly to the banks it works with. While I haven't used it, it looks like a good source of no-penalty CDs.
Raisin review - Business Insider
Top savings rates (with several Raisin arrangements) - Deposit Accounts