Check if the online bank says it is part of the FDIC insurance program. Every bank that is in the FDIC insurance program—whether online or “bricks and mortar”—is safe. You can check the home page of your online bank; all banks that participate in the program will advertise that fact boldly. But I think it is smart to double-check directly with the FDIC.
| You need to understand that FDIC insurance does not cover investments, such as a stock fund. Federal insurance for banks and for credit unions covers deposit accounts, not investment accounts. A deposit account can be a checking, savings, CD, or money market account. But banks are also allowed to sell investments. Mutual funds are investments. Stocks and exchange-traded funds (ETFs) you buy through a bank are investments. And they have zero insurance. Zero. |
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| When you opened the account you probably signed some sort of acknowledgment that you understood this, but those disclosures are easy to miss. And, of course, there was no guarantee that your friendly bank account manager who was excited to have you makes the investment took the time to slowly and clearly spell things out. |
| When you invest in the stock market—whether it be through a fund you buy at a bank, a credit union, a brokerage, or a fund company—you have no protection against bear market losses. |
