Americans are saving money at record rates as COVID-19 pandemic uncertainty drives a desire for bigger safety nets. But earning a return on that savings is tough to come by with interest rates near zero.
New financial technology startup Save Advisers thinks it has the answer. Its gearing up to launch a FDIC-insured savings platform this summer it says is a low-risk way to earn a higher yield. Taking a page from robo advisors, customers open a savings account with a minimum of $1,000 and instead of getting a fixed rate of interest, Save invests the customer’s interest in a portfolio of ETFs that cover stocks, bonds, real estate, and commodities. The startup is currently in talks with banks to insure the savings accounts and has teamed up with Apex, a fintech custodian to mange the assets of customers.
The returns vary based on the market but is averaging around 3.2%. That compares to a high yield savings account which gets you an average return of around 1.6%. If Save doesn’t deliver a return, the initial investment remains intact. Flexibility is limited if yield is what you’re after. The returns are paid out on an annual basis and added to the insured FDIC account. Customers who withdraw their money prior to that won’t see any returns. Save charges a 35 basis point fee on the total assets in the account when returns surpass that.
“We’re looking at similar returns to the S&P over the last ten years without any risk for active customers,” says Michael Nelskyla, Founder and CEO of Save. “That’s where the power of the platform lies.”
The COVID-19 pandemic is hitting the global economy much harder than the financial crisis of 2008 and 2009. Millions of people are unemployed, companies are struggling with steep losses, and many small businesses have closed their doors forever. Wages are falling and consumers are afraid, causing many to save the COVID-19 stimulus checks issued by the government. According to the government, U.S. incomes fell 2% in March but the savings rate jumped to 13.1% from 8% in February. It marked the highest level since 1981. It didn’t stop there. A new survey by MagnifyMoney found about 42% of people saved money in May close to ten percentage points higher than April. Savers aren’t getting rich, however. The yield in the current environment is dismal. It is against this backdrop Save sees a big opportunity.
“Since the financial crisis interest rates have been very close to zero so there’s been this constant search for yield,” says Nelskyla. “In this market, this (Save) is even more attractive.”
In addition to boasting a higher return than a traditional savings account, Save plans to give customers a bonus of $1,000 in equivalent portfolio investments for referring a friend or family member. That amplifies the potential returns over the year. It’s also rolling out a debit card that pays customers $1 of additional investments for every $1 spent.
Save isn’t the first fintech to offer a savings account and access to investments. Acorns and Betterment are two popular examples, but Nelskyla says it’s the only one that doesn’t charge a fee if it doesn’t deliver any returns. The audience is also a bit different given the minimum deposit required to open an account is much higher. At Acorns, one only needs $5.00 while at Betterment it’s $10. Nelskyla says the company is going after savers with a large pool of money who want a better yield but with less risk and active savers looking to get more of a return. Those customer bases could help insulate it if the pandemic peaks again, resulting in more lockdowns in the future.
“Save is not your typical savings account, it’s a ‘savetech’ platform that offers hard-hit Americans the ability to save more during this difficult time,” says Nelskyla. “With Save, you get the best of both worlds: FDIC safety net for your initial deposit, while your interest can grow faster with the upside of market investments.”