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Users who sign up for the wait list for the US-based digital wealth manager’s checking account — expected to launch in partnership with nbkc Bank later this year — can open a savings account with a 2.69% interest rate; otherwise it will come with a 2.43% interest rate, per CNBC.
The accounts will be insured by the FDIC, while deposits will be held at federally insured banks including Citi, Barclays, and Valley National.
Here’s what it means: Betterment’s savings account comes with an attractive, market-leading interest rate — but its new accounts boast other features, like cash analysis, that can also bring in users.
- Betterment’s interest rate offering is significantly higher than the national average of 0.1%. This announcement comes shortly after Goldman’s Marcus reduced its interest rate from 2.25% to 2.15%. So, while Marcus is seeing great success with its savings account — it had $35 billion in deposits as of January 2019 — consumers might now opt to explore higher-yielding options like Betterment’s. Also, while Wealthfront recently raised its interest rate to 2.57%, this is still lower than the 2.69% Betterment users could get if they join the wait list for the its checking account.
- And its cash analysis and two-way sweep features could help the startup to further differentiate from the competition. After linking a checking account to Betterment’s savings account, the cash analysis tool can identify excess cash that could potentially be moved into savings. And by enabling the two-way sweep feature, Betterment automatically transfers the extra cash into the savings account. Since 1 in 5 US consumers aren’t saving any money for retirement, emergencies, or other financial goals, features that automate savings will likely be welcomed.
The bigger picture: Fintechs are increasingly dipping into new segments of the financial services industry, and smaller players would be wise to seek out partnerships to offer users similar features.
- A number of large fintechs have recently launched products outside of their initial area of focus. US-based SoFi, which initially focused on personal and student loans, recently launched aninvestment product, while commission-free trading app Robinhoodapplied for a national bank charter, for instance. These moves help fintechs provide their users with more rounded offerings and a sticky value proposition. However, this also increases their competition: Betterment competes with other digital wealth managers, but now, it’s also up against incumbent and digital banks, as well as other savings account providers.
- Smaller fintechs may struggle to diversify their product suites, and they should focus on partnerships to ensure they remain relevant. For smaller players, it can be difficult to launch a range of products, due to lack of financial and staff resources. To remain competitive in the fintech space, these startups should look into partnerships as an avenue to offer their users a wider set of services. UK neobank Monzo, for example, recently teamed up with OakNorth to offer its users access to a larger range of savings accounts after the neobank had to close sign ups for its own savings account offering.
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