According to the article some users lost all of their money. Some funds were recovered... but other account holders lost all of their money despite the appearance of FDIC.

"Unlike meme stocks or crypto bets, in which the user naturally assumes some risk, most customers viewed funds held in Federal Deposit Insurance Corp.-backed accounts as the safest place to keep their money. People relied on accounts powered by Synapse for everyday expenses like buying groceries and paying rent, or for saving for major life events like home purchases or surgeries.

Several people CNBC interviewed said signing up seemed like a good bet since Yotta and other fintechs advertised that deposits were FDIC-insured through Evolve.

“We were assured that this was just a savings account,” Morris said during last week’s hearing. “We are not risk-takers, we’re not gamblers.”

Abandoned by U.S. regulators who have so far declined to act, they are left with few clear options to recoup their money.

In June, the FDIC made it clear that its insurance fund doesn’t cover the failure of nonbanks like Synapse, and that in the event of such a firm’s failure, recovering funds through the courts wasn’t guaranteed."

No question holding one's own keys has risks and personal responsibility is a must. However if a seed phrase is generated with an open-source hardware wallet and kept secure... the bank cannot 'fail'. At least these people would have their own money still. A cautionary tale in my opinion.