Is Your Money Safe in a Neobank? Deposit Protection Explained
This explainer covers the difference between deposit insurance at a licensed bank and safeguarding at an electronic money institution, and how to check which applies to your account.
Is Your Money Safe in a Neobank?
Neobanks are regulated and secure to use day to day. The question that really matters is what happens to your money if the provider fails. The answer depends on whether your neobank is a licensed bank or an electronic money institution.
Licensed banks and deposit insurance
A neobank with a full banking licence protects eligible deposits under a deposit guarantee scheme. In the UK that is the FSCS, covering up to GBP 85,000 per person per banking licence. In the US, FDIC insurance covers up to USD 250,000 per depositor per insured bank. In the EU, a Deposit Guarantee Scheme covers up to EUR 100,000 per depositor per bank. If the bank fails, you are repaid up to the limit, usually within days.
Electronic money institutions and safeguarding
Many fintech neobanks operate as electronic money institutions rather than banks. They protect customer money through safeguarding, which means keeping it separate from the firm's own funds in a segregated account or low-risk assets. Safeguarding has no fixed insured amount. If the firm fails, an administrator returns the safeguarded money to customers, but this can take longer and administration costs may be deducted.
How to check and reduce your risk
- Read the account terms or app to see whether it is deposit insured or safeguarded.
- For US neobanks, check the named partner bank that provides pass-through FDIC insurance.
- Keep large, long-term balances at a licensed bank within the insured limit.
- Treat a safeguarded account as a great everyday and travel tool rather than a vault for your life savings.
None of this means neobanks are unsafe. It means knowing which protection applies lets you place the right amount of money in the right account.