Promotion CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.

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The tech industry is known for innovation and generating the next big thing. But at a time of economic uncertainty and rising interest rates, a growing segment of the technology sector is after one of the most uninnovative products on the planet: yield.

With US Treasury yields rising late last year to their highest levels in more than a decade, consumers and investors can finally generate returns simply by depositing their money into savings accounts.

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Banks respond by offering higher yield offers. American Expressfor example, offers consumers an annualized return of 3.75% (APY), and First CitizensCIT Bank has a 4.75% APY for clients with a deposit of at least $5,000. Ally Bank, which is only available online, is promoting a certificate of deposit of 4.8%.

However, some of the highest rates available to savers come not from traditional financial firms or credit unions, but rather from companies in and around Silicon Valley.

apple He is the most prominent of the newcomers. Last month, the iPhone maker launched its own Apple Card savings account with 4.15% APY in partnership with the Wall Street giant. Goldman Sachs.

Then there’s the entire fintech market, which consists of companies providing financial services to consumers with an emphasis on digital products and a friendly mobile experience rather than physical branches with expensive bank tellers and loan officers.

Stock trading application Robinhood It has a feature called Robinhood Gold, which offers 4.65% APY. Interest is earned on the uninvested cash collected from the client’s brokerage account to the partner banks. It’s part of a $5 per month subscription that also includes lower borrowing costs for margin investing and stock investing research.

The company raised its yield from 4.4% on Wednesday after the Federal Reserve approved its 10th interest rate increase in just over a year, lifting the benchmark borrowing rate by 0.25 percentage point to its target range of 5%-5.25%.

Federal Reserve Chairman Jerome Powell speaks during a conference call at the Federal Reserve Bank of Chicago on June 4, 2019.

Scott Olson | Getty Images

The company said in press release announcing its height.

LendingClub, an online lender, is promoting an account with a yield of 4.25%. Deposit growth rose 13% for the first quarter of 2023 compared to the previous quarter, the company told CNBC, “as depositors look to diversify their funds outside traditional banks and earn growing savings.” On an annual basis, savings deposits increased by 81%.

And the promotion, which is being spearheaded by Renaud Laplanche, founder of LendingClub, offers 4.56% For customers with a minimum balance of $1,000.

“It’s really a trade-off for consumers, between safety or appearing safe, and the return,” LaBlanche told CNBC. The Upgrade Program, which is based in San Francisco, and most other fintech players hold customer deposits with institutions backed by Federal Deposit Insurance Corp. Therefore, consumer funds are safe up to the $250,000 limit.

SoFi Is a rare example of a fintech firm with a bank charter, which I acquired last year. It offers a high yield savings product of 4.2% APY.

The story is not just about rising interest rates.

Across the emerging fintech spectrum, companies like Upgrade are, wittingly or not, capitalizing on a moment of disruption in traditional finance. On Monday, First Republic became the third US bank to fail since March, following the collapse of Silicon Valley Bank and Signature Bank. All three saw depositors rush for exits as concerns about a liquidity crunch led to a cycle of doom.

Shares of PacWest and other regional banks have fallen this week, even after First Republic’s orderly sale to c. B. Morgan Chase It was supposed to indicate stability in the system.

After the collapse of SVB, Laplanche said Upgrade’s banking partners came to the company and asked it to increase the flow of funds, in an apparent attempt to stop withdrawals at smaller banks. Upgrade farms from the money you attract to a network of 200 small and medium-sized banks and credit unions that pay the company for deposits.

It used to be dead money

For more than a decade, before the recent jump in rates, savings accounts were dead money. Borrowing rates were so low that banks could not offer a profitable return on deposits. Also, stocks were on such a tear that investors were doing just fine with stocks and index funds. A subset of those with a risk stomach is getting big in cryptocurrencies.

according to price bitcoin A number of cryptocurrency exchanges and lenders have begun to emulate the savings model of banks, offering very high returns (up to 20% per annum) for investors to store their cryptocurrencies. These exchanges are now bankrupt in the wake of the crypto industry crash last year, and many thousands of customers have lost their money.

There is some potential instability for fintech companies, even those outside the crypto space. Several of them, including Upgrade and Affirm, partner with Cross River Bank, which acts as a regulated bank for companies without charters, allowing them to offer lending and credit products.

Last week, Cross River had a An approval order from the FDIC What the agency described as “unsafe or improper banking practices”.

Cross River said in a statement that the order focused on fairness lending issues that occurred in 2021, and that it “places no limitations on our broad existing fintech partnerships or the credit products we currently offer in partnership with them.”

While large-scale fintech companies are subject to much less regulatory pressure than cryptocurrency companies, The FDIC’s action indicates that regulators have begun to pay closer attention to the types of products that high-yield accounts are designed to complement.

However, the emerging array of high-yield savings products is more widespread than crypto platforms have been touting. This is largely because the deposits come with government-backed insurance guarantees, which have a long history of safety.

Nor are they designed to be large profit centers. Instead, by offering high returns to consumers who have long put their money into stagnant accounts, tech and fintech companies open the door to new potential customers.

Apple has a full suite of financial products, including a credit card and payments app, that pair seamlessly with a savings account, available only to the 6 million-plus Apple Card holders. Those customers reportedly put nearly $1 billion in deposits in the first four days of the service being brought to market.

Apple did not respond to a request for comment. “We’re very pleased with the initial response to that. It was incredible,” CEO Tim Cook said on the company’s earnings call Thursday.

Apple savings account


Meanwhile, Robinhood wants more people to use its trading platform, and companies like LendingClub and SoFi are building relationships with potential borrowers.

High-yield savings accounts, while compelling to the consumer, are not core to most fintech companies but serve as an in-house vehicle for more lucrative products, like consumer lending or traditional credit cards, Laplanche said.

“We started with credit,” said LaBlanche. “We think this is a better strategy.”

SoFi I launched a high yield savings account in February last year. In its annual filing with the Securities and Exchange Commission, the company said offering current, high-yield savings accounts provides “more daily interactions with our members.”

ConfirmsKnown as the buy-now-pay-later company, it has offered a savings account since 2020 as part of its “full suite” of financial products. The yield is currently 3.75%.

“Consumers can use our app to manage payments, open a high-yield savings account, and access a customized marketplace,” the company said in its 2022 SEC filing. An Affirm spokesperson told CNBC that the savings account is “one of many solutions in our product suite that empower consumers with a smarter way to manage their finances.”

Against the background of a regional banking crisis, savings products from anywhere but the National Bank may look unattractive. But chasing yield comes with at least a little bit of risk.

City Or Chase, it feels safe to the consumer,” LaBlanche said. Apple and Goldman aren’t inherently dangerous, but they’re not like Chase.”

— CNBC’s Darla Mercado contributed to this report.

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