A bank surrogate is formed when a company creates a unique, online customer interface for banking but keeps customer deposits with a true depository institution that is insured by the FDIC, like most banks in the country.
Examples of bank surrogates include PerkStreet Financial, SmartyPig, SmarterBank and Simple. None of them are real banks but they offer financial accounts with special perks and features. And customers’ money is FDIC-insured.
The rise of bank surrogates came during the growing unrest against traditional banks, which have been accused of predatory and unfair practices such as raising fees on checking accounts. Customers were feeling nickel and dimed by their banks. Bank surrogates represent a technology-backed push to revamp an outdated way of banking.
While traditional banks charge more fees, slash perks and offer low interest rates on deposits, bank surrogates are able to provide low-cost (often free) financial accounts with better rewards programs or higher rates -- features made available in part due to the lack of a physical presence, like online banks. Many bank surrogates offer ATM fee reimbursements or partner with ATM networks to offer some level of free ATM access.
Additionally, bank surrogates tend to place more emphasis on the user-experience aspects of everything, including the website design, the online/mobile account interface, the rewards programs (if any) and money management tools.
You may find that one of these bank surrogates fits your financial habits more appropriately than your current bank, especially if you are already with an online bank.