High Savings Rates Offered by Non-Traditional Banks and Fintechs
Saving money has become increasingly important in today’s economic climate. With the unpredictability of the job market and the constant increase in the cost of living, people are looking for ways to save more money than ever before.
One way to do this is by finding a high-yield savings account that offers better interest rates than traditional banks. In recent years, non-traditional banks and fintechs have been offering some of the best savings rates in the market.
Online-only banks and their advantage in offering better rates
Online-only banks, also known as direct banks, do not have brick-and-mortar branches like traditional banks. They operate online, offering digital services that allow customers to open accounts, transfer money, pay bills, and access other financial services.
This business model allows them to keep their overhead costs low, which translates into better interest rates for their customers. Some of the most popular online-only banks include Ally Bank, Discover Bank, Marcus by Goldman Sachs, and Synchrony Bank.
These banks offer savings rates that are usually much higher than the national average, which is currently around 0.05%. For instance, Ally Bank offers a high-yield savings account with a 0.5% APY, Discover Bank offers a savings account with a 0.4% APY, and Marcus by Goldman Sachs offers a savings account with a 0.5% APY.
Non-traditional banks and fintechs offering high savings rates
Aside from online-only banks, there are other non-traditional banks and fintechs that offer high-yield savings accounts. These include brokerage firms, peer-to-peer lenders, and mobile-only banks.
Some of the most popular ones include Betterment, Robinhood, LendingClub, Upgrade, and SoFi.
Betterment is primarily a robo-advisor, but it also offers a high-yield savings account with a 0.3% APY. Robinhood, which is famous for its commission-free trading platform, has launched a cash management account that offers a 0.3% APY.
LendingClub, a peer-to-peer lender, offers a savings account with a 0.4% APY. Upgrade, a personal loan provider, also offers a savings account with a 0.4% APY.
Lastly, SoFi, which started as a student loan provider, now offers a high-yield savings account with a 0.5% APY.
Silicon Valley tech firms entering the high savings rate market
Besides non-traditional banks and fintechs, Silicon Valley tech firms are also entering the high savings rate market. Apple, for instance, has launched a digital credit card called Apple Card, which comes with a savings account called Apple Cash with a 0.5% APY.
Robinhood has also launched a cash management account that is backed by Goldman Sachs and currently offers a 0.3% APY. These Silicon Valley firms have an advantage in offering savings accounts because they have a large user base of loyal customers.
They can leverage their existing customer base to offer better interest rates while still profiting from their other products. However, they still have to comply with banking regulations, which can be a challenging task for firms that are not primarily banks.
FDIC Consent Order on Cross River Bank and its Impact on Fintech Partnerships
With the growth of fintechs and banking-as-a-service companies, regulatory scrutiny has also increased. Recently, Cross River Bank, a New Jersey-based bank that partners with fintechs to offer banking services, was hit with a consent order by the Federal Deposit Insurance Corporation (FDIC).
Cross River Bank’s consent order and alleged unsound banking practices
The FDIC alleged that Cross River Bank engaged in unsound banking practices related to its loan policies and was not in compliance with fair lending regulations. The bank was ordered to take corrective action to address the issues that were identified.
This consent order has raised concerns about the risks involved in partnering with banks that may not have sound banking practices.
Ripple effects on banking-as-a-service companies and their partners
The consent order on Cross River Bank has had ripple effects on banking-as-a-service companies and their partners. Banking-as-a-service (BaaS) allows fintechs to partner with banks to offer banking services to their customers without having to obtain a banking license.
However, these partnerships come with regulatory risks, and the regulatory purview of these arrangements is still being defined. The Cross River Bank case has highlighted the importance of establishing clear standards and regulations for BaaS partnerships to avoid regulatory violations.
Partnering with banks that have a strong track record of regulatory compliance and sound banking practices is crucial to ensure that the fintechs’ customers are protected and that the partnerships are sustainable in the long run. Acting Comptroller of the Currency’s speech on risk in bank-fintech partnerships
The Acting Comptroller of the Currency, Brian P.
Brooks, has also given a speech on the risks involved in bank-fintech partnerships. He emphasized the importance of establishing clear regulatory parameters and standards for these partnerships to ensure that they are mutually beneficial and sustainable.
Brooks also stressed the need for banks to have sound practices and risk management strategies in place to manage the risks that come with partnering with fintechs. He stated that the OCC is exploring the possibility of creating a special purpose national bank charter for fintechs to provide regulatory clarity and consistency for this growing industry.
Conclusion
In conclusion, the rise of non-traditional banks, fintechs, and Silicon Valley tech firms has led to the availability of high-yield savings accounts that offer better interest rates than traditional banks. However, regulatory concerns continue to be a challenge for both banks and fintechs.
The recent consent order on Cross River Bank has made it clear that it is crucial for BaaS partnerships to have clear standards and regulations to manage regulatory risks. The Acting Comptroller of the Currency has emphasized the need for banks and fintechs to work together to create sustainable and mutually beneficial partnerships that benefit customers while mitigating risk.
In summary, non-traditional banks and fintechs have been offering high-yield savings accounts with better interest rates than traditional banks. However, regulatory concerns have been raised due to Cross River Bank’s consent order, which has highlighted the importance of regulatory clarity and sound banking practices for banking-as-a-service partnerships.
To mitigate risks, it is crucial for banks and fintechs to work together to create sustainable partnerships that benefit customers. Establishing clear regulatory parameters and standards can help manage regulatory risks and create consistency in the industry.
Overall, saving money and finding the best savings account options require careful consideration of interest rates, regulatory compliance, and sound banking practices.