While much of the financial world is focused on the troubles of the banking industry of late, not all the news is worrisome for consumers.
Fintech, which for so long sat on the outer realm of finance, is beginning to make its push toward the mainstream—and some of the biggest names in industry are signing up to assist.
Apple (AAPL), last month, launched a high-yield savings account, paying an annual percentage yield of 4.15%, while charging no fees, requiring no minimum balance and having no minimum deposit requirements.
Consumers were drawn to that APY, which is well over 10 times higher than the national average (which stands at 0.25%, according to Bankrate.com). In its first four days, Apple’s savings account drew nearly $1 billion in deposits (and with 2 billion iPhone owners, the untapped market is still large).
Apple partnered with Goldman Sachs for the savings option. It’s part of an ongoing drive to nudge iPhone users to view their smartphone as a mobile wallet. Goldman, however, offers consumers a high-interest savings option of its own. Marcus, with $100 billion in deposits, also offers its users a 4.15% APY, with promotions moving that as high as 5.15% for some customers.
There’s something of an arms race among these savings accounts, which are virtually all online only. As fintech operations look to establish a foothold in the financial sector, they’re regularly one-upping each other. Step, a digital bank that’s geared toward young adults, currently pays an APY of 5%, for instance. That fintech has more than 4 million account holders.
The surge in high-APY accounts comes as consumers are looking for some stability amid Wall Street’s volatility of late and overhanging fears of an imminent recession. Aggressive APY rate increases have been made easier by the Federal Reserve’s string of policy hikes this year, but when the Fed finally begins to taper off of that it could be a test of consumer loyalty to these institutions.
In the short term, though, there’s a lot for consumers to gain. Let’s say you have $20,000, for example – and don’t plan on adding to that amount. Having it sit in a traditional savings account will earn you up to $40 in interest over the course of the year (with that amount being slightly higher or lower, based on where you bank). That same deposit in a 4.15% account will earn $830 in 12 months.
And if that rate were to remain consistent for 10 years (again, something that’s neither guaranteed nor likely), you’d see total interest of more than $10,000, versus less than $450 at the national average.
The risk is minimal, if you do your homework. Most of the new banking accounts, including Apple’s, are protected up to $250,000 by the FDIC, thanks to partnerships with existing banks. But it’s critical for consumers to verify whichever high-yield savings account they opt to try is covered by that safeguard.
The drawback, though, is similar to the stock market: volatility. Yields shift regularly with the Fed. And as that body begins to lower rates, which is a very real possibility in the next year, the fintechs will lower their rates as well.
Also, while 4% is certainly better than a quarter-of-a-percent, that’s still notably below last year’s overall inflation rate of 6.5%, so ultimately it won’t provide as much shelter from rising prices as you might hope.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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