We all like to be around people like ourselves. It’s human nature. The more we have in common with others, the easier it is to communicate. The same goes for financial institutions. We want our financial institution to know what products and services we want. This is what gives rise to a type of bank called a niche bank. Niche banks focus on a specific target market and studies their needs and wants. For example, if you are retired and travel around the country in a recreational vehicle, you will probably have a different set of banking needs than the general public. The same is true if you are a service member. Frequent changes of duty stations and overseas deployments can create specific banking needs and requires bankers that understand them.

While it is important to choose a bank that understands your specific situation, it is more important to make sure your funds are insured and regulated. The Federal Deposit Insurance Corporation, or FDIC, is an independent agency created in 1933 by Congress when banks were failing all over the country. Since then, it has monitored financial institutions to maintain safety and soundness. More importantly, the FDIC insures basic deposit accounts — so if the financial institution fails, the FDIC will reimburse depositors up to certain limits. Similarly, most credit unions are insured and monitored by the National Credit Union Administration, or NCUA.

If the financial institution is covered by either of these agencies, most types of basic deposit accounts will be insured for up to $250,000 per account holder. That means any amount over $250,000 may be uninsured depending on how the accounts are titled. You can find more information about FDIC limits on the FDIC website.

Not all financial institutions are insured, so be sure to do your homework. Some online uninsured financial institutions will park your money with another FDIC insured institution and move it back and forth between the insured bank accounts and uninsured investment accounts. While the returns may be higher, the risk of investment loss is also higher. If you open an account with one of these niche banks, you are depositing your money with a middleman. It may be safe, but you have an additional layer of issues — including due diligence, privacy and costs — to keep in mind.

Along with the rise of niche banks providing basic banking services, there has also been a rise of “Affinity Fraud.” According to the Securities and Exchange Commission, affinity fraud is a type of investment fraud in which a con artist targets members of an identifiable group based on markers such as race, age or religion. The fraudster may pretend to be a member of the group and often will promote a pyramid or multilevel marketing scheme.

It’s important to research any financial institution first before depositing your hard-earned money. To find out if a niche bank is FDIC or NCUA insured, you can check either the find a bank page at FDIC or the research a credit union page at NCUA.

Working with a niche bank that markets to your lifestyle may be inviting, but take the time to make sure you are trusting your money to one that is properly regulated and insured.

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Written by Dave, an Accredited Financial Counselor® who has been helping families plan their finances for more than 30 years.

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