Verifying Your Internet Bank Deposits are FDIC Insured
Over the last several years banks have launched new internet divisions. These are often good deals, but how do we know the internet bank website is owned by a legitimate bank and not scammers? And how do we know that our deposits will be FDIC insured?
Recently several readers have expressed this concern about UFB Direct. In addition to being a new website, UFB Direct also offers the highest rate of all internet savings account. This may increase the fear that it could be too good to be true.
The complication with UFB Direct and its website ufbdirect.com is that it's a division of BofI Federal Bank (formerly Bank of Internet USA). Readers have reported that they have contacted the FDIC, and the FDIC representatives have been unable to confirm ufbdirect.com. The FDIC reps claim they are unable to confirm the divisions of banks.
This issue isn't unique with UFB Direct. You'll have the same issue with many internet banks. Some examples include incrediblebank.com, mybankingdirect.com, amtrustdirect.com, cnbbankdirect.com and clearskyaccounts.com. The issue goes all the way back to 2005 when Emigrant Bank launched EmigrantDirect.com. At the start of 2005 this new internet bank was offering a 3.00% savings account which was way above the rates offered by ING Direct and other internet banks. Consequently, this made people a little suspicious.
Update: Just so there are no worries about UFB Direct, I was able to find a link pointing to ufbdirect.com at this BofI Holding page. The UFB Direct name and link are located on the top right of the page. There's a link to this BofI Holding page at bankofinternet.com's About Us page. Click on the "Investor Relations" link.
Verifying a Bank is a FDIC Member
How can we verify that deposits held at these internet banks are FDIC insured as we are led to believe by the websites? Here's the process that I've used over the last six years:
- Find the FDIC page on the bank. You can search for the bank using this FDIC Bank Find tool. Here is the FDIC page for Bank of Internet USA (now called Bofi Federal Bank).
- Verify the bank's primary website address at the bank's FDIC page. For the case of BofI, it's www.bankofinternet.com
- Since the FDIC only lists the primary website address of the bank, it can't be used to verify the bank's secondary website addresses (like ufbdirect.com). Verify the secondary website address at the bank's primary website. Ideally, there will be some mention of the secondary website address somewhere under the bank's primary website.
- If you can't find any mention of the secondary website address at the bank's primary website, call the customer service number listed at the bank's primary website. The phone representative should be able to confirm the secondary website is part of the bank. Note, calling the number at the bank's primary website is better than the number listed at the secondary website. If the supposed secondary website is a scam, anything on that website including phone numbers can't be trusted.
- If you want something more than the word of a customer service representative, ask them to mail you a letter to confirm that deposits made through the secondary website are FDIC insured by the bank. I have never done this, but if a bank wants your business, it seems to be a reasonable request. Perhaps if they get enough requests, they will add a page under their primary website that confirms the secondary website.
I can't say if this process will guarantee with 100% certainty that deposits held at an internet bank are FDIC insured. There's always a chance that a bank could make a mistake on a website or a phone representative could provide wrong information.
The FDIC could make this verification process much easier if they provided a tool that could verify bank's website addresses. The tool would allow you to search for a website address to see if it's owned by a FDIC member bank. It would hold both the primary address and the secondary addresses. Another option is for the FDIC to include a list of secondary website addresses with the primary address. The banks would be responsible to provide the FDIC all website addresses which are used to take deposits. I've put in a request for this at the FDIC, but I never received a reply.
The banks could make it easier for customers by mentioning the internet divisions and the secondary website addresses at their primary website addresses. A few banks have done this in the past. However, it seems that banks don't always want to publicize their internet divisions on their primary websites. My guess is that they don't want their customers to know about the deals at their internet divisions.
Future Internet Bank Scams?
If the FDIC doesn't take into account secondary websites, I fear crooks may some day try to exploit this by creating a website pretending to be an internet bank. Instead of making up an FDIC charter, the crooks will just claim it's a division of some small bank.
In the last six years since I've been blogging, I have not heard about this type of fraud being committed. I've seen a few ponzi schemes related to banks, but these have not involved FDIC-insured banks or NCUA-insured credit unions.
Other FDIC Insurance Complications
One thing that can cause confusion is that deposits held at the internet division are typically not separately insured from deposits held at the main bank. For example, if you hold $250K at a ufbdirect.com savings account and $250K at a checking account at bankofinternet.com, $250K out of the $500K of deposits may not be insured (assuming they are in the same ownership category). Your deposits at all divisions of a bank are grouped together from a FDIC deposit insurance point of view. The only exception would be if the divisions have separate FDIC charters.
Another complication is that not all products and services offered by a bank are FDIC insured. Only bank accounts are FDIC insured. Mutual funds, safe deposit boxes and annuities are not insured. Please refer to our article What's NOT Protected by FDIC Insurance for more details.
Finally, don't forget that most credit unions have federal deposit insurance through the NCUA which is very similar to FDIC. There are some credit unions in certain states that only have private deposit insurance (see post). To learn how to verify the deposit insurance of credit unions, please refer to my FDIC/NCUA verify post.
If you go here: https://www.bankofinternet.com/bofi/about.aspx there is a link to "Corporate Profile" under Investor Relations.
That link takes you here: http://www.snl.com/irweblinkx/corporateprofile.aspx?iid=4055785 which shows that UFB Direct is a division of the BofI holding company.
The $2 billion-asset bank said that Bank of Internet would remain its flagship brand, operating as a division of BofI Federal Bank. Its other three divisions, Apartmentbank.com, BofIAdvisor.com and ufbdirect.com, would retain their names and also operate as divisions of BofI Federal Bank."
You can not have multiple sub banks using the main bank as guarantor.
It is very likely so, because the sub banks are not chartered with FTC and FDIC directly
and can be shut down by the regulators at the slightest whim of trouble or complains.
Sub banks acting as separate banks could very well be in trouble with the tax system and other regulations.
For now they are operating in the shadow of the law, but sooner or later there will be some sort of trouble.
One problem I can think off that FDIC will complain is that the insurance on the sub bank accounts may have been sheltered and not reported or paid the proper fees since the main banks claim as they are sub guarantor of those accounts now.
About SFGI Direct
SFGI Direct is an online division of Summit Community Bank where you can bank safely and easily with competitive rates on a savings account.
However, most of those banks with name “direct” inserted behind, are not separate and or individual banks for tax purposes, but are made to cut the cost for the main bank that can claim all of the sub accounts in “direct” entities as expenses and avoid direct FDIC insurance premiums.
There will be outcry form the regulators when they figure out the schemes involved.
Which means, instead of those deposits being liability as per banking regulations, they are instead turned into assets that do not require FDIC insurance on them and other banks can buy into these notes and trade them as they are guaranteed by the issuing banks.
Grey area indeed, if there is no law against it, it is assumed it is legal to do that, until acted upon it by the authorities and or new laws are re-written against such banks.
I also use a bank such as PenFed where I can verifty the routing number using the "Save a non PenFed account" feature.
For example, for Domain Name: UFBDIRECT.COM
Bank Of Internet USA
care of Network Solutions
PO Box 459
Drums, PA. US 18222