Most of us grew up with one kind of bank: the branch down the street where you cashed checks and spoke with a teller.
Today, things are more complicated. The money apps on your phone may all look similar, whether you are checking your balance, transferring funds, or making a payment. But the protections behind them can be very different.
Do you know what kind of institution manages your money?
1. Traditional banks with charters
These are the banks that have been around for generations. They hold federal or state charters, which means they are heavily regulated and directly insured by the Federal Deposit Insurance Corporation (FDIC). Eligible deposits are covered up to $250,000 per depositor, per account category, per institution.
Traditional banks provide the broadest set of services: checking and savings accounts, mortgages, personal loans, credit cards, and business services. They usually operate branches, though many customers now rely on mobile apps for daily transactions.
Examples: JPMorgan Chase, Wells Fargo, Bank of America.
2. Online-only banks with charters
These institutions are also true banks with their own charters and direct FDIC insurance. The difference is that they operate entirely online. Although you cannot walk into a branch, you still receive the same legal protections as at a traditional bank.
Because they save money by not maintaining branches, online-only banks often pass those savings on to customers in the form of higher interest rates on deposits or lower fees. They offer full-service accounts, but the experience is entirely digital.
Examples: Ally Bank, Discover Bank, Sofi Bank
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3. Fintechs
Fintechs, short for financial technology companies, are not banks. They are technology firms that use software to deliver specific financial services. Some focus on payments, others on investing, lending, or credit management. Many also provide budgeting tools that help people track spending and plan ahead.
If a fintech allows you to hold cash in the app, those funds are usually kept at a partner bank that provides FDIC insurance. But the fintech itself is not regulated like a bank. That means it is important to check the fine print to know who the banking partner is and how your money is protected.
Examples: PayPal for payments, Robinhood for investing, Mint for budgeting, Credit Karma for credit monitoring and management.
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4. Neobanks
Neobanks are a special type of fintech. The “neo” means new, and their goal is to replace your everyday bank account with a digital-only option. Neobanks typically offer checking and savings accounts, debit cards, and direct deposit, all managed through an app.
Most neobanks do not have their own banking charters. Instead, they partner with traditional banks to hold deposits and provide FDIC insurance. A few have pursued their own charters, but that remains rare. The attraction of neobanks is convenience: easy sign-up, low fees, real-time notifications, and streamlined app design.
Examples: Chime, Monzo, N26.
5. Non-bank financial services
These companies let you hold or move money, but they are not banks and may not provide FDIC insurance. Your balances are not deposits in the legal sense. Instead, the company owes you the money, and your protection depends on whether they sweep funds into a partner bank or offer a different form of coverage.
For investment accounts, there may be Securities Investor Protection Corporation (SIPC) coverage, but this protects securities in brokerage accounts, not cash balances. With payment apps, money left in the app may not be insured at all until you transfer it to a bank account.
Examples: a Venmo balance, PayPal balance, or cash not yet swept into a brokerage account at Robinhood.
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Understanding your choices
Whether you are checking your balance at a traditional bank, moving money with a fintech, or paying a bill through a neobank, the app experience can feel similar.
However, the protections behind each service differ. A slick app can make a weak company look trustworthy, while a clunky app may still connect you to one of the safest banks in the country.
For small amounts of money, such as spending cash in a payment app, you may not need to worry too much. The risk is low, and the convenience can outweigh the downside.
For larger sums, it is important to know whether your funds are protected by FDIC or NCUA insurance. That coverage is what guarantees your money if the institution holding it fails.
Here are some simple guidelines to keep in mind:
- Check for insurance. Make sure savings and emergency funds are FDIC or NCUA insured.
- Know your limits. FDIC insurance covers up to $250,000 per depositor, per account category, per institution.
- Understand the fine print. If a fintech or neobank says deposits are insured, confirm which partner bank provides the coverage.
- Use apps for spending, not storage. It is fine to keep small balances in Venmo or PayPal, but do not treat them like savings accounts.
- Diversify. Spreading money across more than one institution can increase your coverage and reduce risk.
Remember that an app is only the interface. What matters is which company stands behind it, how your money is held, and whether it is insured.
Understanding that distinction allows you to enjoy the convenience of modern finance without putting your savings at unnecessary risk.
If you’ve got more than $100,000 in savings, don’t rely on app recommendations. Speak with a human. SmartAsset offers a free service that matches you to a vetted, fiduciary advisor in less than 5 minutes.
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