Is Wise bank safe?
With the recent news about Synapse, I am a little on edge with the safety of my money. I am currently living in France for school, and am hoping to immigrate here permanently. All of my savings is in USD, so I need a way to easily and cheaply convert between USD and EUR, and be able to spend EUR locally. After a ton of research, I decided to move almost all of my banking to Wise. They don't offer traditional banking features like in-person branches or checks, but I didn't use those anyway. I can get a local bank number in any of the many countries they support. The savings account APY is insanely high (higher than I have seen from even the best high yield savings accounts. I have a debit card that allows me to spend directly from any one of my bank account currencies, and auto convert to other supported currencies. And the USD account is insured by FDIC passthrough insurance.
In the thread about the Synapse collapse, people were saying that passthrough FDIC insurance doesn't always mean that the customer's money is actually insured. And apparently some fintech services will just lie about what is covered by FDIC insurance. I am not a lawyer, and I have no idea how to validate Wise's claims about passthrough FDIC insurance.
I was recently able to open a France bank account, which was surprisingly difficult. (To open a bank account you need proof of address, like a cell phone or electricity bill. I don't pay for utilities in my school apartment, and to get a cell phone plan I need a bank account. That was fun to try and navigate.) I have these bank accounts currently: my Wise account with US USD, Belgium EUR, and UK GBP, a US Credit Union account, and a French EUR bank account. My US credit union and French banks give a very low or zero APY, so keeping my money in my Wise accounts is preferable for that reason. But I also can't afford to loose all my savings if Wise collapses. My question is this: Is Wise safe enough for general money storage, or should I use it just for converting between currencies and keeping a small amount for spending? If Wise isn't safe, what about another similar product? I have heard of Revolut, but I didn't do much research since Wise seemed better for my use case.
Alright I dug into it a little bit and (assuming everything on their website is accurate) it seems like you are fine as long as you are earning an interest in your account with them. I am not a lawyer though, so take this all with a big grain of salt, and I personally would look elsewhere going forward.
Long explanation below:
I looked at their website and they really seem to emphasize that only the accounts with interest get pass-through protection. So I looked into what pass-through protection was on the FDIC website and it's mostly what it sounds like. The relevant conditions for an investment to actually receive the FDIC protection is the following:
So seems like the money needs to be owned by you, not the third party [Wise], and your contract with them needs to specify that they are holding the money for you at these 'program banks' that are insured by the FDIC.
So from there I looked at their interest plan that they so heavily emphasize. The agreement for that plan states that:
So the agreement you signed with them (I assume there was something signed) indicates that they are the custodians for your cash, the exact same terminology used by the FDIC as a requirement for pass-through insurance protection.
So again, everything seems fine. I wouldn't panic right now.
However, if I was in your shoes I would probably look into some alternative bank or company in the future. I'm not familiar with Wise other than the 10 mins or so I just spent browsing their site. But there are a couple of things that just make me feel a little uneasy, which is not what I'd want to feel when it comes to life-changing sums of money.
Their main page has this line in a disclaimer at the bottom: "The Program is not intended to be a long-term investment option, checking or savings account, investment contract or security. " <- seems like a cover-your-ass statement if shit ever hits the fan.
The 'program banks' seem problematic to me in a number of ways. Look at sections 1E and 1F on this page. The program banks are subject to change at any time and for any reason. There's no guarantee that the program bank will be a legitimate FDIC-insured bank. They don't have to tell you where your money is and you don't have access to see it. And there's a lot in there about what happens if the program bank fails and how the FDIC will cover that, but no mention about what happens if Wise fails. Oh and it explicitly states that "FDIC insurance will not be continuously available while funds are in transit to, or from, Program Banks" which again they are free to change and swap out at any time and for any reason. If things go wrong in those times where your money is being transferred, seems like the response would be 'tough luck, it wasn't actually in a bank at that time'. Oh and "Wise does not recommend, endorse, guarantee or warrant in any way the financial condition of the Program Bank(s)..." which again sounds like more CYA legal speak.
Lastly, and perhaps more importantly, all of this assumes Wise is acting in good faith and everything on their website is accurate. What I learned from that other thread you mentioned is that these companies can just say whatever and then when shit hits the fan and you find out it was actually not correct, what are you to do then? Sue them? Get in line, plus good luck collecting your debts on an insolvent business.
I'm not saying Wise is bad or that you should run to take your money out of there or never use their services again. Just that I would personally look for more-secure money-storage options that don't involve a third party. At the very least I would make sure whichever company I put my money in is covered by or a member of:
FDIC (banks)
NCUA (credit unions)
SIPC (securities)
FINRA (securities)
Hope that helps anyone else looking at this subject, and good luck!
I like Wise, haven't had issues so far...but they are publicly traded, and not really doing so great comparatively (to the market/other companies), and all it takes is one regulation change or missed registered mail to end up with months of customer service calls to get access to your own money again.
I would have more faith in a T-bill ETF than Wise for a High Yield Savings Account or equivalent. Which is more likely to fail? One company, or the entire global financial system?
The EU does have weird rules about US ETFs though. So without proof of US residency they may not be purchasable, but I would assume the EU has similar ETFs to SGOV.
I agree. I don't know much about EU rules relating to ETFs but I'm a big fan of low-cost index funds with reputable brokers rather than fintech companies or other alternatives like savings accounts, CDs, or T-bills.
Side note, but I hope these personal finance questions become more common on Tildes. There were tons of subreddits for this sort of question on Reddit, but I feel that the general level-headedness of people on Tildes lends itself well to answering specific questions about one's finances.
What about WealthFront? Do you have a similarly dim view of them?
Never heard of them but figured I would take a look cuz why not.
Again, I'm not a lawyer or financial analyst or anything like that, so please verify everything I say, but I just spent 5 mins looking through their website and on the surface they seem pretty similar to Wise but there is one specific reason why I'd trust them more than Wise: They are a member of SIPC and regulated by FINRA (I checked both websites to verify).
Most of what I said above about Wise applies here, that they essentially take your money and deposit it at partnering banks, so your cash would have FDIC protection there. But whereas Wise states that your cash is unprotected while it's being transferred to/from the partnering banks, Wealthfront is a member of SIPC and thus has protection on the cash before it gets to the partnering banks, up to $500,000. So in that sense I think they would be way more secure than Wise. SIPC protects your money in transit and then FINRA basically shows that they're at least trying to be open and honest with their dealings (so less chance of total collapse).
I would look closely at any contract you sign with them just to verify what I've stated above, but on the surface they do look pretty secure (just don't make any transfers of over $500,000 all at once lol).
I still prefer some low-cost index funds for the majority of my savings, but a HYSA like Wealthfront seems fine based on what I just saw. If it were me personally, I'd prefer a HYSA directly in a bank that's a member of FDIC (there are a few that give similar rates like Barclays, Amex, or Capital One) and just cut out the middle man entirely (why add complexity and an extra point of possible failure if you don't need to?). But that protection would only be good for up to $250,000, so I guess if you had more than that it would behoove you to spread it out like Wealthfront does, but at those numbers I would definitely be spreading out my money more creatively.
Me too, I am uneasy about how things will go in January. Would be nice to be able to bounce ideas around with other people on Tildes.
Just to amplify this, a CD, probably at your US credit union, might be the safest bet. It's not as liquid as a savings account, and may not even give you as good a return, but it's likely insured. Although, you will need to check on this, insurance for credit unions is a little different than fdic insurance at banks. You might also be able to purchase EU treasury bills, which might be safer than US CD's or treasury bills depending on just how bad a situation the US is actually in. None of this should be construed as financial or legal advice, I'm just some dude on tildes.
If OP is a US citizen (which might be the case given they also have a US bank account), they essentially can't invest in European ETFs. US law makes it too much of a pain for these funds to accommodate US citizens investing in them. At least this is the impression I've gotten from my financial advisor on the subject.
Fair enough. I don't know much about the EU, just that US ETFs are a no go in many (all?) countries for some reason.
I just want to point out that just because a bank is FDIC insured doesn't mean it's not going to be a huge pain in the ass to get your money back if it does actually collapse. If you're living abroad with no support system, losing access to your funds for months or even years could be a huge issue, so that's worth considering. Sometimes peace of mind is worth more than potential returns from better HYSA.
In this case my concern would be that if wise fails, the insured bank might not have customer records. Many of these companies create holding accounts with the banks that combine the funds of many customers. The accounts might be FDIC insured, which protects you if the bank has a run against it. But it doesn't help if the company, like wise, goes under and their records of what customers assets are in which holding account are lost or incomplete. Getting that sorted out, like your say, could take a long time to wind through the courts.
From this page about how wise protects customer funds I think it is important to note:
I have very little understanding of the banking guarantees that FDIC gives (I'm not in the states and not an accounant/lawyer). But my very layman interpretation is that since Wise isn't a bank your deposits to them are not protected. I could of course be wrong about those, but I'd be at least a bit worried about it.
u/Plik already replied to you, but yeah the key part of this equation is something the FDIC calls 'Pass-through Deposit Insurance Coverage'. Link
With their interest plan, Wise is essentially a middleman between you and their partnering banks. If the money makes it to the bank (and if the bank is FDIC insured) then your money should be safe. The problem is if something happens to Wise while your money is in transit (i.e. not at the bank yet, or being transferred from that bank to another). For most people, I think it would make a lot more sense to just do business directly with the bank and avoid that risk altogether.
Basically if you don't opt into one of their high yield services your money just sits with them. If you opt into a high yield service then they send your money "somewhere" that is most likely a giant high yield Wise savings account(s) at whatever bank(s) they have chosen. In that case the banks and thus Wise's account is probably/maybe FDIC insured.
I think the issue is if Wise has problems, then it may end up being on the consumer to figure out which banks their money has been sent to, which could turn into an ordeal.
Just recently happened to watch Yotta Bank & The Problem with Fintech! by Patrick Boyle and found it informative and entertaining.
I interpret your scenario as Wise deposit into some bank account is covered by FDIC, but my deposit to Wise is not (since they aren't a bank).
I will have to watch that. I find the limitations placed on normal humans being able to move their money around legally fascinating (all in the name of anti-money laundering/counter terrorism).
As far as your money at Wise, I am pretty sure the reason only interest earning "wallets" (or whatever they call them) get FDIC insurance is because Wise sends your money to a high yield account at a real bank. If you just have your money sitting in a GBP/USD/CNY wallet not earning interest, then I assume the money sits with Wise, and not at an actual FDIC insured bank.
I am not an expert though, so I could be completely wrong.
I’ve used Wise a decent amount as a currency conversion service and always been happy with them, but they aren’t a bank and as a (very general) rule of thumb that means it’s not a great idea to leave money there.
Banks have very specific regulation in pretty much every country, so if you’re accessing your money via an entity that isn’t a bank that’s an extra layer of complexity and risk.
If something goes wrong with a bank account, the next steps are very clear (although what those steps are will vary by jurisdiction, of course). If something goes wrong with a non-bank financial provider acting on behalf of a bank, there’s a much higher chance you’ll end up the subject of a thread like the Synapse one where people like me argue the toss on whose legal responsibility it is. Best case you end up with a bunch of extra stress and complexity, worst case you lose your money entirely. [Edit: @tauon makes a good point about EU regulations probably making the latter scenario less likely - but I’d still say you don’t want to risk being the test case for that!]
Of course, things generally don’t go wrong, so I wouldn’t start panicking here and now - but I would be moving any stored funds into real accounts with known and directly regulated banks just in case. It’ll remove that layer of small but unnecessary risk and you’ll sleep easier!
[Edit 2]: Also, assuming this is the same product you’re talking about when it comes to interest, it looks like they’re just passing through the interest from Blackrock funds invested in the various currencies, after taking a cut for themselves. Holding in the EUR account actually would’ve lost you a small amount of money each year from 2019-2022.
If you’re happy to accept that same risk of slight negative returns you can pretty easily hold equivalent investments yourself, but if you don’t like the sound of that either due to risk or just difficulty, you can get decent enough savings accounts directly from regulated banks too. The rates will be worse, but they’re generally guaranteed and won’t go negative.
If you have a US address where someone can receive mail...and you can appear to be a mostly US resident, I highly recommend opening a Schwab brokerage + checking account. Or if you randomly have 25k sitting around to maintain the minimum balance, go for the Schwab international account (they will force you to switch over if they figure out you aren't exactly a US resident).
Any bank or fintech can end up fucking you if regulations change, or they catch wind that you don't have the right residency on file. You should have enough money to survive on for 2-3 months locally and easily accessible just in case random bank/fintech bs locks you out of your non local account(s), and ideally not all of your money ever in one place. Also maybe 500+ USD (or equivalent) stashed and unused somewhere in your home.
Wise has been great for money transfers, but I recently transferred the small amount I had sitting there to my actual bank account because I was worried about losing access to it and having to spend 3+ months getting my own money back.
Very relevant option for your situation: If you go the brokerage route, but don't like investing, you can park your money in the SGOV ETF, which pays monthly dividends that basically match the rate you'd get in a High Yield Savings Account. Any money you park you would need to not need for roughly 1 month, as the SGOV share price drops every 30 days when the dividends are paid out. It then rebuilds back to it's peak value over the next 30 days (~100 USD/share). It is one of the safest/least volatile ETF options available, but do your own research.
I would transfer out 2-3 months of survival money to your French account from Wise, then figure out what you want to do with the rest after more research.
Sincerely,
An expat who has been screwed out of account access on more than a few occasions.
This seems like good advice. But it seems like if the price of SGOV drops after a dividend and then you sell, that’s fine because you just got a dividend? That is, the market price should be a fair price and you can buy and sell whenever you want.
(It will affect whether it’s interest income versus a small amount of capital gains or losses, though.)
I mean you can check the graph on finviz.com, it looks like a sawtooth waveform. You won't make any meaningful capital gains off it, but you will get monthly dividends that amount to one year of cash in a HYSA, which would be taxed as income, but are not taxed at a state level.
Yeah, I do something similar but with a mutual fund that invests in treasuries. Maybe an ETF would be better; I haven't done the comparison.
One main advantage to the ETF route is you can sell and immediately use the cash balance for other investments. With MFs and MMAs you usually have to wait until the next day after a sale to use the cash (assuming margin isn't enabled).
can you give more information about this? I've been keeping my medium-term savings in a moneymarket fund that makes about 4% interest, which is a lot better than if I just left it in my bank savings account, but also I think I could do a lot better, I'm just not really sure how?
(I currently am with Vanguard but I'm in the process of switching to Schwab after Vanguard sold off my I401k to Ascensus, who I absolutely do not want to have any dealings with)
Well, as they say, "A graph is worth a thousand words":
https://finviz.com/quote.ashx?t=SGOV&p=d
Click the blue dividend dot and you can see each month's dividend per share, ~0.43 USD per 100 USD.
(0.43/100)*12 months = 0.0516 or 5.16% dividends per year. SGOV has management fees of 0.09%. So 5.16 - 0.09 = 5.07%. If that beats your HYSA, then it might be worth it. This is just a very rough way of calculating yield. Hopefully it helps understand how the ETF's pricing and dividends over each month are related.
The actual yearly yield (dividend TTM) is 5.23% right now, you can see that in the first data column at the bottom of the finviz page.
There are other ETFs similar to SGOV, but I don't know enough about them to talk about them even semi-intelligently.
so do you have to buy into this fund at a specific time of the cycle or does that not matter?
You should be buying with the goal of holding for 30 days. I assume it is possible to buy high, sell low, and lose money with the wrong timing. However, even if you buy in the middle of the month (say 15 days) after the price has dropped on the 1st, as long as you sell in the next month on or after the 15th you shouldn't lose any money because you would have received one dividend, and the price should have risen close to what it was when you bought it.
I think, but am not sure, as long as you don't buy ~5 days before the 1st of the next month you shouldn't lose money. If you buy too close to the 1st you will be buying at the ~highest price, and will miss out on the dividend because you need to own the shares a few days before the payout date to be eligible for the dividend.
Basically, if you can hold for 30+ days I don't think there is a way to lose money except perhaps with Fed interest rate changes. That's getting into economics that is beyond my understanding.
Okay, I think this makes sense. I'm not moving money for another couple weeks still (will prob do it in early January so I don't accidentally get screwed by someone taking off for the holiday and having paperwork not completed when I expect it to be) so when I get to this I will look into it more carefully. Thanks so much for this info!
No problem. My general rule with new ETFs that I am unsure about is not to go all in right away, but also to put enough in that I would be concerned enough about a loss to keep tracking it. Losing a few bucks I will just mentally write off, but if it's a few hundred then I will naturally pay way more attention on a daily/weekly basis. If I feel comfortable after a 3+ month trial period, then I will put more money into the ETF.
This works better for me than looking at graphs or backtesting, as having skin in the game changes your behavior to be closer to what it would be like if you were more invested. That's just me though, I am far from a financial advisor and still learning this stuff myself. However, when I find an interesting financial instrument I do like to talk about it....and I don't meet too many people IRL who can talk about this stuff.
Thanks everyone for all the fantastic advice. In particular, thanks /u/fefellama, /u/Greg, and /u/Plik. I read through the entire thread here and there is a ton of good info.
I think the conclusion I have come to is this: Wise doesn't have any huge red flags that mean I need to get my money out ASAP. But it is a fintech company and has some inherit drawbacks since it has fewer consumer protections.
Wise does provide a very good service, so I plan on continuing to use them, in particular for currency conversions. It also does provide a universal debit card that allows me to spend money in many currencies, which is incredibly useful for traveling. However I need to have backup options so that, in the event of an issue with Wise, I can continue to survive financially for a short time.
I am going to use my French bank as my primary store of Euro and spending money, and my US credit union account or the Schwab account for storing my USD, and Wise just for currency conversions and a small store for travel spending.
NB banks get deposit protection in the first place because they're structurally riskier businesses.
Banks make money by fractional reserve lending, meaning the loan out most customer deposits, at a higher interest rate than they pay depositors.
The risk is a bank run - many depositors requesting withdrawals simultaneously (e.g. if there's a rumor the bank will go under) - that the bank doesn't have enough cash to honor (because the deposits were loaned out) - the bank can fail. That's why there's deposit protection in the first place - to give depositors confidence and reducing the risk of bank runs.
Wise makes money by charging fees for services they provide - primarily FX conversion, but also the debit card, and asset management products. It does not make loans, so you don't have that same kind of risk. It wouldn't be a problem even if all Wise account holders withdrew their balances tomorrow.
No clue about Wise, unfortunately (maybe there are Reddit people with more experience? In the past I quite enjoyed the collective knowledge and opinions found in the finance-related subs), but I am a Revolut user in Germany – they give out Lithuanian IBANs, but same difference basically – which means deposit amounts are insured until €100,000. More and France-specific info is posted here, which states that the deposit insurance compensation will be paid within at most seven days.
Facts aside… It’s obviously a bias and gut feeling, but I feel like EU banking regulations might be more strict in the sense that entities offering deposit accounts must be backed by the government's insurance for banks, and that there are authorities ensuring this is the case more strictly than in the US perhaps.
This is probably a lawyer question to be certain. You could try contacting the FDIC or a government Banking/Finance Regulation Office and specifically ask them if they can tell you what the situation would be if this 'bank' ran into financial difficulties, and they might email you back an answer you can rely on.
That aside, if the 'bank' in question is online only, if it's not connected to an established bank, if it's tech industry, and especially if it's offering high interest rates or other inducements (regular lotteries, gifts, any kind of Wow! Money! rewards) ... you're not a client so much as an investor.
Meaning, they're very likely trying to act similarly to an investment or hedge fund rather than an actual consumer bank. Regardless of what their marketing says. They need invested resources they can turn around and earn off of by dumping into other financial vehicles. Having money means they can make money.
Sure they're trying to cut investors (you, anyone who opens and maintains accounts with funds) into the fun, but that doesn't change how it's an investment. Not a bank. It's all gravy for everyone involved ... until there's a problem. Downturns, over leveraging themselves, all sorts of things can happen and suddenly they're out of money. Which was your money.
If a bank, an actual bank, screws up (which happens; banks get closed and taken over by the Fed not infrequently), that's where FDIC kicks in. That's what banking regulations are so often about, and why they came about in the first place.
Finance has invented some truly Byzantine ways to "make" money. A lot of them get very complicated. Just the 2008 banking crisis alone should illustrate that. There are multiple movies that tried to dumb things down (Margot Robbie in a bathtub anyone?) and still people were not clear, actively confused, over what really happened.
It's only our problem when they fuck up. Like they did in 2008. Which was not the only time in history. Most government regulations about banking came about to protect citizens, designed to encourage trust in banking. These days, as we all should know, regulatory capture has weakened these regulations and the rare implementation of new ones don't keep up with reality. Leaving citizens vulnerable to financial predators.
Finance plays fast and loose, always. That's the kind of people who get into it, who move up in it, and who start opening companies or managing billion dollar funds. Greedy, impatient, eager for vast profitable success now rather than slow and steady on the safe path. Now we have tech bros and similar types, including finance types funding them via venture capital, trying to move into the space.
Rather than do it as an investment (which it is, and how they view and operate it), they call it a bank. Try to take advantage of how people won't or can't investigate, dig through layers, understand the laws and regulations that might or might not be in effect. They plaster FDIC stuff into their literature, use banking terminology, to encourage 'deposits'. Which they then use to invest with. This is the problem for little people, who risk a lot even when they don't realize it.
For example, banks have specific regulations about how much of customer deposits they have to hold in reserve. Meaning, how much they can't lose. They might encounter any number of other difficulties, like a market crash or whatever, but the regulations if followed mean they don't get literally bankrupted. The bank still might close or have extreme financial hardship if they screw up badly enough and lose too much of what they invested, but the reserve regulations act to mitigate the disaster.
These tech bro 'banks' are an attempt to dance around those kinds of things. The same way banks invented terms like "investment bank" and other concepts to try and move away from those regulations they find onerous and unprofitable which very much apply to "consumer" banks.
Tread carefully. The safest thing is to treat these 'banks' exactly the same way you'd treat an investment. You only park money there you're prepared to lose. Either permanently, or for months/years if it all goes belly up and you have to see if lawyers or government regulators might be able to recover it for you (which'll take time because lawyers).
If you're living paycheck to paycheck, you are right to be very, very skeptical and cautious. Except, these are the kind of people the tech bros are including in their prey profile. When you're that broke, an extra five percent a week (or whatever the enticements might be) sounds pretty good. Offer a thirsty man water and he says yes gimmie. But you're probably too busy and too beaten down by the rest of your burden to be able to investigate the 'bank' properly when you're that low on the totem pole, rushing around trying to keep the ends meeting.
Then it all goes away, and suddenly you've lost a paycheck or two when the 'bank' vanishes or whatever. Your landlord, your utility provider, the grocery store, they won't care that it's not your fault. That you were duped, defrauded. They'll want their money or they'll show you the door.
And of course government hasn't stepped in. Too much money to be made. Finance regulators come from the finance industry. Foxes guarding the sheep.
We're the sheep. Caveat emptor .
I overall agree with your recommendations here, but I think you're being a little too uncharitable to Wise, which does not call itself a bank and is transparent about the fact that they are not insured like a bank is. Whether their assurances of how they safeguard your money (which differs based on which entity is providing your services) is enough for you is going to depend on your individual circumstances and how much faith you have in their honesty, but they're at the very least not trying to pretend you're covered by the FDIC or anything equivalent.
For the record, I don't use Wise's account feature myself, though I do use their currency conversion services.