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Beware the Fintech Checking Account
If it sounds too good . . .
Seems easy, right?
You have your job direct deposit your money into an account you can easily access on your phone.
Everything integrates with your online/app-based payment system.
Sure, it’s not FDIC-insured -but, well, that’s an antiquated system based on Depression-era worries.
Well, Jason Mikula over at Fintech Business Weekly has some … news.
It’s not good.
Sure, you might lose out if you park your cash at a Big 5 bank — I mean, it’s not like they treat you well or pay decent interest.
But there are plenty of smaller banks and credit unions that treat customers well, pay decent interest rates, AND are insured by the FDIC or NCUA.
Anyway, here’s a story of fintech checking gone wrong.
Nonbank fintech account: Eco.
Facts from Jason: Not good.
Here we go:
Eco was offering 2.5%-5% interest on checking accounts IF you used Direct Deposit. That is, Eco got your cash right away and you got a damn good interest rate considering that pre-2021, inflation was basically zero and banks were paying almost nothing on deposit accounts.
Funds held as USDC aren’t actually FDIC insured and Eco’s current user agreement warns that “Eco does not control the issuance, redemption, or backing of USDC and cannot guarantee that 1 USDC will always be exchangeable for 1 U.S. Dollar.”
Over time, Eco adjusted its messaging regarding deposit insurance, telling users Eco’s offering was constructed in such a way that FDIC insurance wasn’t needed and that, in fact, most consumers “don’t actually need” FDIC insurance — even publishing a blog post on the topic, which has since been scrubbed from its site.
So, yeah, Eco was investing in an unproven Cryptocurrency. But, well, ok.
It could work out.
Except, well, it didn’t:
So, Eco was telling customers it was earning yield to pay the rates on deposit accounts from investments in Fidelity and Goldman. But — NO. No, it was not.
The only problem is, it doesn’t appear that Eco was ever actually generating yield by lending customer funds to “institutions like Fidelity and Goldman.”
When leveraging BlockFi, Eco doesn’t even seem to have been aware of to whom BlockFi was lending funds, beyond what the crypto lender said publicly at the time, which was limited to saying, “We generate interest rates for you by lending crypto to institutional investors.”
We now know that BlockFi was really lending customer funds to entities like crypto exchange FTX, FTX’s associated crypto trading firm Alameda Research, and crypto hedge fund Three Arrows Capital, all of which are now bankrupt.
There’s something exciting about being “in the know” and taking a bland product like a checking account and getting PAID to use it.
It’s even better if trusted investment bankers like those at Fidelity and Goldman are helping you earn.
A little bit of Crypot? Sure, you’re cool! It’s a fintech and these guys are “brilliant.”
Go to a credit union or a community bank and check out their rates.
Or, you know, use a fintech nonbank deposit account with no insurance and when all the funds generating your “yield” go bankrupt and the guy in a t-shirt and shorts is hiding from the cops in the Bahamas, see if you can get your cash.