Is Square FDIC Insured? How Your Funds Are Protected

Digital financial platforms have become increasingly common for managing money. Many individuals and businesses rely on these services for daily transactions and savings, leading to questions about the safety of their funds. A common concern revolves around whether these platforms, like Square, offer the same protections as traditional banks. Understanding how funds are safeguarded on such platforms is important for users.

Understanding FDIC Insurance

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government established to maintain stability and public confidence in the nation’s financial system. Its primary purpose involves insuring deposits in banks and thrift institutions, thereby protecting depositors from potential losses in the event of an insured bank’s failure. This insurance is backed by the full faith and credit of the U.S. government.

FDIC insurance covers various types of deposit accounts, including checking accounts, savings accounts, money market deposit accounts, and certificates of deposit. The standard coverage limit is $250,000 per depositor, per insured bank, for each account ownership category. This means that all funds held by one person in the same ownership category at a single FDIC-insured bank are aggregated and insured up to this limit.

How Square Funds are Protected

Square, Inc. operates primarily as a financial technology company, rather than a traditional bank, meaning it does not directly hold FDIC insurance for its entire entity. Instead, Square provides banking services through strategic partnerships with FDIC-insured banks or through its own FDIC-insured banking subsidiary. This arrangement allows customer funds to receive deposit insurance protection.

Funds held in specific Square products are eligible for what is known as “pass-through” FDIC insurance. This type of insurance protects the end user’s funds by ensuring they are insured at the underlying FDIC-insured partner bank, even though Square facilitates the account. This structure provides a layer of security for customers utilizing Square’s financial offerings.

Square Financial Services, Inc., a wholly-owned subsidiary of Block, Inc. (Square’s parent company), operates as an FDIC-insured industrial bank. This banking entity allows Square to directly offer certain deposit products and financial services. By having its own FDIC-insured bank, Square can more directly manage the deposit insurance process for eligible customer funds.

Coverage Details for Square Products

The application of FDIC insurance for Square users depends on the specific product. For Square Checking accounts, funds are FDIC-insured up to the standard limit of $250,000 per depositor through Sutton Bank, Member FDIC, which is Square’s partner bank for these accounts. This coverage aggregates all funds held by an individual within the same ownership category at Sutton Bank. The Square Debit Card is also issued by Sutton Bank.

Square Savings accounts are provided by Square Financial Services, Inc., which is also a Member FDIC. These accounts offer a higher level of FDIC insurance coverage, up to $2,500,000. This extended coverage for savings balances provides enhanced protection for business funds.

While many Square products offer FDIC insurance, some types of funds or activities are not covered. Funds that are in transit, such as those being transferred between accounts, may not be covered by FDIC insurance during the transfer period. Cryptocurrency holdings, even if managed through Square’s platforms like Cash App, are not FDIC-insured. Investments made through Square, such as stocks accessed via Cash App Investing, are protected by the Securities Investor Protection Corporation (SIPC) up to $500,000, which is distinct from FDIC deposit insurance.