By Jaime Getto You’re hearing about all of these amazing new financial apps, but perhaps you feel a little uneasy about linking your bank account, or sharing sensitive information like your social security or passport number with a company you barely know anything about.
Skepticism is natural, but it shouldn't prevent you from taking advantage of awesome FinTech innovations. Payment solutions, like Venmo, are improving, automated savings accounts, like Digit, are becoming smarter, and investing in the stock market is becoming more accessible through investing apps like DriveWealth.
Innovation is great. Without it, we wouldn’t have Facebook, online shopping, or even automobiles. However, before you jump on the bandwagon for the “next big thing,” it is important to be conscious about who you are sharing your personal information with online. Here are some great questions to ask yourself before committing to a new financial app:
How am I protected?
Most of us are familiar with the standard protection of our checking account at a traditional bank. These accounts are FDIC insured up to $250,000*. So, if you’re considering any of these new mobile banking options, do a quick scan of their site to see if their accounts also meet this basic standard.
For broker-dealers, it will be important to look to see if they are a member of SIPC. At DriveWealth, all customer accounts are covered by SIPC, which protects securities customers of its members up to $500,00 (including $250,000 for claims for cash).
Are they regulated?
If you’re opening an investing account, with a broker-dealer like DriveWealth, a great first point of reference is to see if they are a regulated entity. DriveWealth, for example, is a Member of FINRA.
All brokers that offer trading to US customers are required to register with the Financial Industry Regulatory Authority (“FINRA”), which monitors brokers conduct and verifies their compliance with financial industry regulations.
If you confirm that the company is regulated by FINRA, you can even dig a little deeper. There is a tool called FINRA Broker-Check where you can search for the firm, and check their history. For example, do they have any questionable activity or were any fines imposed? If it looks like they have a clean bill of health, you can feel more confident about doing business with this firm.
Still not convinced? Here are a few more ways to help answer the looming questions about the safety of your information:
Ask a friend
Research is crucial, but it's always reassuring to check in with your peers: Have they heard of this app? What was their experience with it?
Brand evangelism is always a good sign. If your friend is raving about a product/service without you ever inquiring, there must be something pretty special about it. I recently had this experience with the automated Savings service "Digit". Signing up for this invisible app is super simple. Digit analyzes your spending habits and only saves what you can actually afford.
Despite my excitement, my friends still had a few questions: Is it safe? How is it free? What’s the catch?
Just by taking a quick look at Digit's FAQ section, I learned that your savings account with them is FDIC insured. You can also move money to and from your normal bank account for free, as many times as you'd like, but you do not earn interest on your deposits. It makes sense that the company needs some form of earnings to continue operations. The fact that I did not have to dig too deep to find these answers is comforting. Transparency can help clear the air when you feel that something is too good to be true.
Check the disclosures
If the information isn’t on any of the main pages of the company’s website….
Keep scrolling. Almost there. Yes, those links and sometimes long paragraphs at the very bottom of a company’s website can be a worthwhile read. These are great places to reference before signing up for something that involves your finances.
Things you'll find:
-Hidden Fees - Does free actually mean free?
-Information Sharing - Who else is seeing my personal details?
Test it out
Does the app offer a demo environment? Or a tour? If so, take it for a spin first to see if it's for you. At DriveWealth, for example, you can open a free, lifetime practice account to test your investment strategies and get familiar with our platform. If and when you feel confident enough to take the next step, you can open a Live Investing account that will mimic that same user experience.
*Deposits in checking accounts, savings accounts, money market savings accounts and Certificates of Deposit (CDs) are insured up to $250,000 per depositor, per insured bank, for each account ownership category under the FDIC's general deposit insurance rules. Deposits in bank individual retirement accounts (IRAs) are separately insured up to $250,000 per owner.
DriveWealth is a mobile investing platform for individual investors that offers a selection of Exchange Traded Funds (“ETFs”) and US listed stocks. DriveWealth also offers free educational content to help investors understand finance and investing basics.
Member of SIPC, which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org.
Practice Accounts are available to all users risk free and at no cost to the user. Practice accounts are to be utilized for educational purposes only. Practice accounts are funded with virtual dollars, not real dollars, which means that a user can neither gain nor lose money.
All investing carries risk. Past performance is not indicative of future returns, which may vary. Investments in stocks and ETFs may decline in value, potentially leading to a loss of principal. Online trading has inherent risk due to system response and access times that may be affected by various factors, including but not limited to market conditions and system performance. An investor should understand such facts before trading. The risks associated with investing in international securities, including US-listed ADRs and ETFs that contain non-US securities include, among others, country/political risk relating to the government in the home country; exchange rate risk if the country's currency is devalued; and inflationary/purchasing power risks if the currency of the home country becomes less valuable as the general level of prices for goods and services rises.