A high-yield savings account is supposed to be a safe place to stash some cash while earning interest, but that’s not the case for thousands of Americans who found themselves locked out of their own accounts.
Since May, 2024, scores of bank customers have been unable to withdraw their funds, with more than $100 million effectively frozen, according to ABC 7 Eyewitness News.
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Konstantin Tarnorutskiy is one of these unfortunate bank customers. Using a fintech app called Yotta, Tarnorutskiy had been depositing money into his high-yield savings account (HYSA), which is backed by the FDIC-insured Evolve Bank & Trust. The Yotta app gives users an opportunity to win prizes by saving money, a feature that interested Tarnorutskiy.
"It was convenient," Tarnorutskiy shared with ABC 7 Eyewitness News. "There’s usually a penalty with the high-yield savings. This one, as long as you had their debit or credit card, then there would be no penalty to withdraw money if you needed to use it."
In a lawsuit filed against Evolve Bank & Trust, Yotta claims that roughly 85,000 customers deposited money in good faith, but now they can’t access those funds.
What’s going on with Evolve Bank?
The issue stems from a dispute between Evolve Bank & Trust and Yotta over missing funds. Yotta blames Evolve for withholding customer deposits, while Evolve claims the missing money is due to the financial collapse of Synapse Brokerage, a third-party service that facilitated transactions between fintech apps and banks.
In its lawsuit against Evolve, Yotta alleges that thousands of its customers have lost access to their funds due to the bank’s "treachery." Meanwhile, Evolve insists that Synapse was responsible for transferring money and that the funds are no longer in Evolve’s possession.
The location of the missing funds remains unclear, leaving customers increasingly frustrated.
"The money doesn’t exist,” Tarnorutskiy said. “It’s not held at Evolve. So they did an audit of all their transactional logs, and they’re saying that the money doesn’t exist."
Some customers have received partial reimbursements, while others — like Tarnorutskiy — have not recovered any of their funds. Former Illinois resident Zack Jacobs, who launched the website "Fight For Our Funds," lost nearly $100,000 in the debacle.
"Yeah, I mean… it is like losing a house," Jacobs said. "It’s terrible… I hadn’t touched it in a while, so it was sort of out of sight, out of mind… it’s almost an unfathomable amount of money to lose, especially to not lose it doing something risky."
Evolve says more money is being returned, and its search for the missing funds remains ongoing.
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How to safeguard your savings
High-yield savings accounts are generally a low-risk option that can grow your savings and earn interest on money that you may need in the next few years. However, the Yotta/Evolve debacle highlights the importance of understanding the limitations of fintech apps and HYSAs.
Here’s how to protect your money, and what to do if problems arise.
Work directly with your bank
Many fintech apps partner with traditional banks, but these apps are not banks themselves. This means they do not offer the same protections and rely on third-party intermediaries, as seen in the Yotta/Evolve/Synapse case.
Whenever possible, open accounts directly with well-established banks rather than relying on fintech apps to manage your deposits. Furthermore, you should always be sceptical of fintech apps that aren’t FDIC-insured.
Understand deposit insurance limitations
The FDIC (Federal Deposit Insurance Corporation) insures deposits up to $250,000 per depositor, per insured bank. However, coverage can become murky when third-party services are involved. Always verify whether your funds are held directly at an FDIC-insured bank and stay within insured limits.
Consider diversifying your savings into different accounts
Keeping all your money in one bank or app can be risky. Instead, try spreading your savings across multiple financial institutions to reduce the impact if one encounters financial difficulties. This is especially important when dealing with fintech apps that rely on multiple partners to process transactions.
Know your rights and quickly take action if issues arise
Check your balance regularly to spot issues early. If you have problems with your account, call customer support immediately and document all communications with the bank, in case legal action is necessary. If the bank or app can’t resolve your issue, consider filing a complaint with the FDIC, the Consumer Financial Protection Bureau (CFPB) or state banking regulators.
While high-yield savings accounts at trusted banks are typically safe, it’s essential to understand where and how your money is held. By being cautious of apps, staying within FDIC insurance limits and monitoring your accounts closely, you can better protect yourself from potential losses.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
