Banks or Fintechs? How Safe is Your Money if They Go Bankrupt?
When someone decides to keep their money in a financial institution, they expect that institution to help preserve or even grow their capital. However, questions arise about the safety of savings in these institutions. Nowadays, fintechs offer much more attractive returns compared to traditional bank savings accounts. It is crucial for savers to know the amount of money that the Mexican financial system can legally back in each of these cases.
Deposits in banks are insured by the Institute for the Protection of Bank Savings (IPAB) for up to 400,000 UDIS (approximately 3.4 million pesos at the current value of the UDI). If an amount exceeds this limit, the excess will be handled during the bank's liquidation process, but there are no guarantees regarding its recovery. This is regulated by multiple laws, including Article 6 of the Law for the Protection of Bank Savings. Additionally, banks are required to inform their users about the type and amount of the guarantees. The protection provided by the IPAB is activated in specific situations, such as when a bank goes bankrupt or is being liquidated under intervention. The National Banking and Securities Commission, along with the IPAB, determines these conditions. This guarantee is also enforced in the event of a suspension of operations or failure to meet the bank’s payments and obligations, affecting products like savings accounts and fixed-term deposits. However, it does not cover uninsured investments, such as stocks, bonds, or insurance policies.
Regarding fintechs, they are generally regulated as Sofipos (Popular Financial Societies) or Sofomes (Multiple Purpose Financial Societies), as well as IFPE (Institutions for Electronic Payment Funds). For instance, Nu, a Sofipo, is subject to the Fintech Law and has a system that protects its users’ savings. Currently, it offers an annual interest rate of 14.25%, significantly higher than what traditional banks provide. However, protection in Sofipos is limited to 25,000 UDIS per user (equivalent to about 215,000 pesos), which is considerably lower than the coverage the IPAB provides for banks. It’s important to note that Sofipos also have limits on deposits. Nu, on the other hand, is in the process of obtaining a banking license in Mexico, which will allow them to offer higher limits and more products. “By transitioning from a Sofipo to a Multiple Banking Institution, we will be able to offer a stronger regulatory framework to help more Mexicans simplify their financial management,” the company previously stated. Therefore, it is essential to ensure that the fintech you wish to work with is properly regulated, like the Sofipos. You can verify this in the Financial Service Providers Registry System of Condusef.
In summary, it is crucial to understand the differences in savings protection offered by both traditional banks and fintechs. While banks provide broader coverage, fintechs may offer more attractive returns, albeit with fewer guarantees. To make an informed decision, it is vital for users to research and gather information about the institutions they plan to trust their money with, as well as understand the risks and limits each option entails.
