What is a neobank, and is your money protected in one?
A neobank looks like a bank on your phone, but behind the app it may or may not be one. Who actually holds your money decides whether deposit insurance protects it, and how quickly you could get it back if something breaks.
The short answer
A neobank is a digital-only banking service run through an app. Some hold their own banking licence; others partner with a licensed bank that actually holds customer money. Deposit insurance protects you if an insured bank fails, not if the app company or a middleman fails.
Key takeaways
- Neobanks are digital-only providers that compete with traditional banks on app design and speed; some are licensed banks, others partner with one1.
- In the U.S., FDIC insurance covers up to $250,000 per depositor, per insured bank, per ownership category2, but only against the failure of the insured bank3.
- If a nonbank app company fails, FDIC insurance does not apply; money held through it is covered only if strict record-keeping conditions are met3.
- When fintech middleman Synapse went bankrupt, the FDIC said consumers could not reach funds held at insured banks for months5.
- In the UK, the FSCS protects bank deposits up to £120,0007, but not money held by e-money or payment firms6.
What exactly is a neobank?
"Neobank" is an informal label rather than a type of licence. It usually means a provider that offers current accounts, cards and sometimes savings or loans entirely through an app, with no branches. The Basel Committee on Banking Supervision describes neobanks as digital-only players that try to compete with traditional banks by tailoring online products and delivering services faster1.
The important split is legal, not visual. Some neobanks hold a full banking licence and take deposits themselves. Others are technology companies that partner with a licensed bank; the Basel Committee notes that in some markets neobanks operate without a banking licence by working with incumbent banks1. Two apps can look identical and sit on opposite sides of that line.
Three common set-ups behind a banking app
| Set-up | Who holds your money | Protection if things go wrong |
|---|---|---|
| Neobank with its own banking licence | The neobank itself | Covered like any insured bank, up to the limit2 |
| App partnering with a U.S. bank | A partner bank, often in a pooled account | FDIC covers the bank's failure; if the app fails, insurance does not apply3 |
| UK e-money or payment app | The e-money or payment firm | Not protected by FSCS6 |
How does a partner-bank neobank hold your money?
When a non-bank app offers you an account, your money usually lands in an account at its partner bank that holds funds for many customers together. The FDIC calls these custodial deposit accounts: the bank knows the total, while the records of who owns how much may be kept by the app or by another company in between5.
Figure · Where your money sits
- 01Youdeposit through the app
- 02Fintech appyour login and support
- 03Records keeperwho owns how much
- 04Partner bankholds pooled funds
This set-up can work, but it adds links to the chain. Deposit insurance can still "pass through" a pooled account to each customer. The FDIC's condition is that records must identify who owns the money and exactly how much each person owns3. If those records are missing or wrong, working out who is owed what can take a long time.
Is money in a neobank covered by deposit insurance?
In the U.S., the Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per FDIC-insured bank, for each account ownership category2. It covers checking and savings accounts, money market deposit accounts and certificates of deposit, but not investments such as stocks, bonds, mutual funds or crypto assets2. The FDIC says no depositor has lost a penny of insured funds since it was founded in 19332.
The catch is what the insurance protects against. FDIC deposit insurance does not apply if a nonbank company fails or files for bankruptcy; in that case, recovering money goes through bankruptcy proceedings, which can take a long time3. A rule the FDIC finalized in December 2023 requires nonbanks that talk about deposit insurance to state clearly that they are not themselves FDIC-insured and that the insurance only protects against the failure of an insured bank4.
The UK works in a similar way. The Financial Services Compensation Scheme (FSCS) protects deposits at authorised banks, building societies and credit unions up to £120,000; the limit rose from £85,000 on 1 December 20257. The FSCS cannot protect money held by e-money or payment services firms6.
How to check your neobank's protection
- 1
Find the bank's name
Look in the app's terms, account agreement or website footer for the licensed bank that holds deposits.
- 2
- 3
Check what kind of balance you have
A bank deposit, e-money, an investment or crypto are each treated differently. Crypto assets are not FDIC-insured2.
- 4
Add up your total at that bank
The U.S. limit is per depositor, per bank, per ownership category2, so money you hold at the same partner bank directly and through apps may count together.
What happened when a fintech middleman failed?
The weak point in partner-bank models is the records. In 2024 the FDIC described how the bankruptcy of Synapse Financial Technologies, a nonbank that worked between banks and fintech companies, affected consumers' ability to access funds placed at insured banks for a number of months5. The banks had not failed; the problem was establishing whose money was whose.
In response, the FDIC proposed a rule for custodial accounts with transactional features. Banks would have to keep records identifying each beneficial owner and the balance attributable to each, and reconcile those records at least daily5. At the time of writing this was a proposal, not a final rule.
Risk warning
Do not keep more than you can wait for
Even when deposit insurance applies in the end, a failure in the chain can freeze your money while records are sorted out. Keep only what you need for day-to-day spending in an app you have not verified, and hold emergency savings directly with an insured bank you can confirm on an official register.
How do neobanks compare with traditional banks?
Neobanks are built on new technology rather than decades-old systems, which the Basel Committee says lets them use technology cheaply and quickly. It also notes they may face less stable deposit funding, and that their share of banking assets remains small in most jurisdictions1.
Figure · Neobank versus traditional bank
Neobank
- App-only, no branches
- No legacy systems to carry
- Deposit funding may be less stable
Traditional bank
- Branches plus digital channels
- Legacy systems to maintain
- Most of the banking system's assets
None of this makes one type safer by default. What matters for your money is the licence, the protection scheme and the quality of the records. Our explainers on open banking and embedded finance cover the plumbing that some neobanks rely on, and how banks create money explains what a deposit really is.
What mistakes do beginners make with neobanks?
Common beginner mistakes
Reading "FDIC-insured" as "the app is insured"
The insurance protects against the partner bank failing, not the app company3.
Keeping emergency savings in an unverified app
If records break down, access can be frozen for months, as Synapse customers found5.
Ignoring the limit across accounts
Balances at the same bank in the same ownership category are added together toward the $250,000 limit2.
Assuming crypto in the app is protected
Crypto assets are not covered by FDIC deposit insurance2, even if the app also offers an insured account.
Frequently asked questions
Is a neobank a real bank?
Sometimes. Some neobanks hold a banking licence; others are technology companies that partner with a licensed bank1. The app's terms should name the bank that holds your deposits.
Does the FDIC insure fintech companies?
What is pass-through deposit insurance?
It is how FDIC coverage can reach individual customers whose money sits in a pooled account opened by a company. It only works if records show who owns the money and how much each person owns3.
Is an e-money account in the UK the same as a bank account?
How do I check if a bank is FDIC-insured?
Use the FDIC's BankFind tool or call the FDIC directly3. Search by the bank's legal name, not the app's brand name.
The bottom line
A neobank's app is only the front door. Whether your money is protected depends on who holds it: an insured bank, a partner bank through a pooled account, or a firm outside deposit protection altogether. Find the licensed bank's name, check it on an official register, and keep emergency savings where you have confirmed the protection yourself.
Sources
- Digitalisation of finance — Basel Committee on Banking Supervision, Bank for International Settlements, 2024 Primary source
- Understanding Deposit Insurance — Federal Deposit Insurance Corporation Primary source
- Is My Money Insured by the FDIC? (FDIC Consumer News) — Federal Deposit Insurance Corporation, 2023 Primary source
- FIL-65-2023: FDIC Official Signs and Advertising Requirements, False Advertising, Misrepresentation of Insured Status, and Misuse of the FDIC's Name or Logo — Federal Deposit Insurance Corporation, 2023 Primary source
- Requirements for Custodial Deposit Accounts with Transactional Features and Prompt Payment of Deposit Insurance to Depositors (proposed rule) — Federal Deposit Insurance Corporation, 2024 Primary source
- Check your money is protected — Financial Services Compensation Scheme Primary source
- What is the FSCS and what is the new deposit protection limit? — Bank of England, 2025 Primary source
How we checked this page: every figure above links to the numbered source it came from. Spotted an error? Tell the desk — see our editorial policy.
Read next
Fintech · ExplainerWhat is fintech, and how does it change the way money moves?Fintech is the umbrella word for the apps, software and new firms that handle money with technology. Knowing what sits behind the app on your phone tells you who is actually holding your money and which protections apply.
Fintech · ExplainerWhat is open banking, and how does sharing your bank data work?Open banking lets you tell your bank to share your account data with another app, or to let that app start a payment for you. It began as a competition fix in Europe and is still being worked out in the U.S.
Fintech · ExplainerWhat are embedded finance and banking as a service, and who holds your money?More and more apps that are not banks now offer accounts, cards and loans. Behind most of them is a licensed bank you may never have heard of, and the way the pieces connect decides how safe your money is.
Finance · ExplainerHow do banks create money when they make a loan?Most of the money in your account was never printed. It was typed into existence by a bank when someone borrowed. Here is how that works, and what keeps it in check.
Policy · ExplainerHow do you check whether a financial or crypto firm is regulated?A licence number in a website footer proves nothing until you check it yourself. Official registers are free, public and take a few minutes. Here is which one to use and what to look for.