Trusting Fintech: Four Critical Moves to Protect Yourself

  • March 19, 2023 at 09:30

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4. Check the Organization’s Investor Protections.

If you’re choosing a new fintech brokerage or bank account, make sure that your assets are covered by industry-specific safeguards like FDIC insurance (opens in new tab) or SIPC investor protections (opens in new tab). These will help protect invested assets — to a degree. SIPC and FDIC coverage helps protect investor assets up to certain limits if a broker or member fails for whatever reason.

The FDIC normally insures the first $250,000 a depositor puts into a bank account. In theory, if the bank fails, $250,000 of cash would be protected, but anything in excess of that would be lost. The recent failure of Silicon Valley Bank is proof of how imperative it is to ensure your money is FDIC-protected.

SIPC coverage provides similar protection for securities held at a brokerage firm if, for example, a firm like Robinhood were to fail. We have seen recently how dramatically tech companies are cutting jobs and reorienting their businesses. A fintech might have looked like a unicorn a year ago but could have seen its revenue or startup funding dry up in 2023.

Investing in cryptocurrencies can be riskier because similar protections do not exist for crypto assets.

If you’re considering investing money with a newer fintech, and you’re not sure how stable they are, a conservative approach would be to keep the level of assets at or below the relevant FDIC or SIPC coverage limits.

Educate yourself about the protections a fintech company provides.

Fintech is designed to make life easier for investors. When implemented correctly, these technologies can provide some great features, insights and efficiencies. Just be sure to spend a few minutes researching the company you’re entrusting your finances with to understand the benefits and/or risks that come with their services.

If it offers sufficient protections, you’ll gain a degree of comfort. If it doesn’t, keep looking — there are definitely companies out there that will take your security seriously.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.