So obviously the way they give up to $5 million FDIC insurance is by spreading your money across 20 of the network banks.
Now, I remember on a prior thread here or elsewhere, when this came up with another website there was a minor issue. Credit Karma is not itself a bank, and therefore does not carry FDIC insurance. See the *** note on the bottom of the webpage:
***The balance in your savings account may be moved to one or more network banks where it is eligible for FDIC insurance up to $5,000,000 once the funds arrive at a network bank. Actual insured amounts may be lower or adversely affected based on any balances you hold at a network bank. Learn more at: https://www.fdic.gov/deposit/deposits.
When you make a deposit, it goes to Credit Karma, and then they move it to the banks. The FDIC insurance is there when your money hits the bank. What happens when the money is at Credit Karma, or they are moving it from one bank to another - where they probably take possession overnight or some short period of time? There is no FDIC insurance at that point in the process.
Does Credit Karma have a hold period from when they receive your money until they pass it along to the network bank(s)? Should Credit Karma go belly up, whatever money is in their possession and not with a network bank on that day will be lost. You'll become a creditor and FDIC will not be able to help you.
Obviously, the likelihood of it happening is quite small, but it is out there and will take its toll should the situation arise.