Betterment, an online investment company from New York City, is putting out its own checking and savings accounts for customers. And, according to the group, Betterment plans to have one of the higher interest rates out there to bring in new customers, reports CNBC.
Beating out the banks
Jon Stein, CEO and Founder of Betterment, commented on the strategy:
“It’s really hard for banks to follow us here. If you look at where the big banks and brokerages make most of their money in their retail savings accounts.”
According to the publication, the company will hit around 2.69% of an annual yield. This beats the national average of 0.10%, reports Bankrate.com. On top of this, Betterment will charge 25 basis points (.25%) for its investment accounts. From here, any new offerings will allow the company to make money from interchange fees when users swipe debit cards, for example. Visa and other associated banks do the same.
That said, Betterment is an investment company, not a bank. So, they must get approval from the FDIC and associates to provide these banking services. However, CNBC claims that this is a fairly common approach to such ideas, especially when it comes to financial companies that aren’t banks themselves. Reportedly, customers who deposit money in Betterment will have their money held at Barclays, Valley National, and Citi. This is great to hear, considering those spaces are FDIC insured up to $250,000 for checking accounts and close to $1 million for savings.
As you may know, Betterment is only one of many financial startups looking to start holding money for its consumers. Another space, Wealthfront, brought out a cash account earlier this year for customers to take advantage of. Since then, the company has seen around $1 billion in customer deposits, and have even increased their interest rates to 2.57%. SoFi, Robinhood, and Acorns are looking at similar approaches as well.
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