Pass-through deposit insurance is the mechanism that can extend FDIC coverage to money a fintech, broker or other third party places at an insured bank on a customer’s behalf. It is not automatic: the FDIC says coverage passes through to the actual owner only if all three of its ownership, titling and recordkeeping requirements are met, and it checks those conditions at the point a bank fails, not when the account is opened.
The question has moved up the agenda for two reasons. Bank-fintech partnerships now hold large pooled balances on behalf of app users, and in April 2026 the FDIC proposed that bank deposits held as reserves for payment stablecoins should not be insured to stablecoin holders on a pass-through basis. Together, the two developments draw a sharper line around what an app balance or a token can and cannot claim.
Pass-through deposit insurance is a method, not an extra $250,000
The FDIC describes pass-through coverage as a way of insuring depositors whose funds are placed at an insured bank through a third party. It is not a separate ownership category. If the conditions are met, the money is insured as though the customer had opened the account directly, in whatever ownership category the customer actually holds the funds.
Pass-through balances are added to the customer’s other deposits in the same ownership category at the same bank. The FDIC’s own example is a customer whose broker opens a single account for them at a bank where they already hold a single account in their own name: both are combined and insured for up to $250,000 in total. A fintech that places customer money at a bank where those customers already bank does not create additional coverage.
The FDIC’s list of covered arrangements includes “companies that offer financial products or services through partnerships or arrangements with FDIC-insured banks”. This is the legal foundation underneath most sponsor bank and banking-as-a-service programmes.
The three conditions the FDIC tests when a bank fails
Under the FDIC’s rules at 12 C.F.R. § 330.5 and § 330.7, deposits held by a third party are insured to the principal only if every one of these requirements is satisfied.
| Requirement | What the FDIC looks for | Typical failure point |
|---|---|---|
| 1. Actual ownership | The funds belong to the customer, not the third party. The FDIC may review the agreement between the third party and the customer, and applicable state law. | Terms that make the fintech a debtor to the customer rather than an agent |
| 2. Account titling | The bank’s account records show the agency nature of the account, for example “XYZ for the benefit of (FBO) customers” | An omnibus account titled only in the fintech’s corporate name |
| 3. Ownership records | Records kept by the bank, the third party or another party in the usual course of business identify each customer and the amount each owns | Ledgers that do not reconcile to the bank balance, or cannot be produced |
If any condition fails, the deposits are insured to the named account holder, usually the fintech itself, and aggregated with its other deposits at that bank in the same category up to $250,000.
When a better rate breaks the agency relationship
The ownership test has a subtle edge. The FDIC says a third party that promises customers more than the bank pays, its example being 3% when the bank pays 2%, has taken on an independent obligation and become a debtor. The deposits are then treated as the third party’s own corporate deposits and pass-through coverage is lost. By contrast, a third party that keeps part of the bank’s interest as its fee can still qualify, provided the fee is disclosed.
Multi-tier arrangements need every level on record
Many fintech set-ups involve chains of programme managers, middleware and the bank. The FDIC allows pass-through across multiple levels, but the records must disclose each level, or show that the depositor acts for others and that each later level keeps good-faith records of names and interests. The collapse of middleware provider Synapse showed what happens when that chain of records breaks.
FDIC insurance does not cover the fintech’s own failure
The most common misunderstanding concerns what pass-through coverage protects against. In its consumer guidance on banking with third-party apps, the FDIC states that nonbank companies themselves are never FDIC-insured, and that money sent to a nonbank is not eligible for insurance until the company deposits it at an insured bank and other conditions are met.
Pass-through coverage responds to the failure of the bank. The FDIC is explicit that deposit insurance “does not protect against the insolvency or bankruptcy of a nonbank company”. In that case customers may recover some or all of their money through an insolvency or bankruptcy proceeding, but the FDIC warns that recovery may take time. For users holding everyday living money in an app, that distinction matters more than the headline coverage limit.
Stablecoin reserves: the FDIC’s proposed carve-out from pass-through coverage
The April 2026 proposal, issued to implement parts of the GENIUS Act for FDIC-supervised stablecoin issuers, would amend the FDIC’s deposit insurance rules in part 330. Deposits held as reserves backing a payment stablecoin would be insured to the issuer as corporate deposits, not to the people holding the tokens.
The FDIC’s reasoning is that the GENIUS Act states payment stablecoins shall not be subject to federal deposit insurance and makes contrary representations unlawful. It added that holders transact by transferring tokens while the funds stay in the reserve account, unlike existing pass-through arrangements where money leaves the account when customers spend it.
Under the proposal, all of an issuer’s deposits at one bank, whether reserves or operating cash, would be added together against the standard maximum deposit insurance amount. Comments were due by 9 June 2026. For the wider rulebook, see Fintechly’s analysis of what the GENIUS Act means for banks.
Tokenised deposits stay inside the deposit insurance perimeter
The same proposal draws the opposite conclusion for tokenised deposits. The FDIC said the statutory definition of a deposit is technology neutral, so a tokenised product that meets that definition is a deposit and “is treated no differently under the FDI Act than other forms of deposits”. The proposal would codify the principle that the technology or recordkeeping a bank uses to record its deposit liabilities does not decide whether they are deposits. The FDIC also asked whether the pass-through rules need amending for tokenised deposits.
The result is a clear split: a bank’s own tokenised deposit can carry the same coverage as a conventional account, while a stablecoin backed by bank deposits, under the proposal, cannot pass that coverage to its holders.
Pass-through deposit insurance FAQs
Is money in a fintech app FDIC-insured if the fintech goes bankrupt?
No. The FDIC states that deposit insurance does not protect against the insolvency or bankruptcy of a nonbank company. Pass-through coverage applies only if the partner bank fails and the conditions are met. If the fintech itself fails, customers may have to recover funds through insolvency or bankruptcy proceedings, which the FDIC warns may take time.
How should a fintech’s pooled account at a partner bank be titled?
The bank’s account records must show the agency nature of the account. The FDIC gives “XYZ for the benefit of (FBO) customers” as an example, and notes that an account can also be titled in the bank’s own name for the benefit of another party. An account titled only in the fintech’s corporate name fails this requirement.
Who has to keep the records showing each customer’s balance?
Under the FDIC’s current rules, the records can be kept by the bank, the third party that placed the funds or another party, as long as they are maintained in the usual course of business. They must identify each customer and the amount each owns. If they do not, the deposits are insured to the named account holder and aggregated up to $250,000.
Can a fintech pay customers a higher rate than the bank pays and keep pass-through coverage?
Not according to the FDIC’s guidance. Promising customers more than the bank pays creates an independent debt obligation, which turns the fintech into a debtor and its customers’ funds into the fintech’s corporate deposits. A fintech can instead keep part of the bank’s interest as a disclosed fee without losing pass-through eligibility.
Would stablecoin holders get pass-through insurance on reserves held at a bank?
Not under the FDIC’s April 2026 proposal. Deposits held as reserves for a payment stablecoin would be insured to the issuer as corporate deposits, aggregated with its other deposits at the same bank. The FDIC said pass-through coverage for holders appears inconsistent with the GENIUS Act’s ban on stablecoins being subject to federal deposit insurance.
Does pass-through coverage add to a customer’s existing accounts at the same bank?
Yes. Pass-through is not a separate ownership category, so balances placed through a third party are combined with the customer’s other deposits in the same ownership category at the same bank. The total is insured up to the $250,000 limit for that category.
For banks and fintechs, the lesson is that pass-through coverage is earned in operations, not in marketing copy: account titling, reconciled ownership records and agency-style pricing determine whether customers are protected when it counts. For stablecoin issuers, the FDIC has signalled that bank-held reserves will protect the issuer’s balance sheet, not token holders directly. Readers tracking the bank-side controls can also read Fintechly’s guide to sponsor bank risk management.
