The monthlong partial government shutdown that ended last week strained federal workers’ abilities to pay their bills, exposing a weakness of our financial system, Varo Money CEO Colin Walsh says.
The mobile banking fintech is trying to help solve the problem by raising the annual percentage yield on certain savings accounts, he said.
“We really are trying to stake out a territory that we want to be the consumer champion,” Walsh said in an interview ahead of Varo’s announcement Tuesday. “The government shutdown highlighted how many people are living paycheck to paycheck and illustrated a real problem in this country” with savings.
Varo’s new 2.80% APY is for qualifying customers who receive payroll or government deposits of $1,000 or more directly into their checking accounts each month, make at least five purchases with their debit cards each month and have a savings balance of $50,000 or less.
An APY of 2.12% will apply if the savings account exceeds $50,000, or if the customer does not meet the other qualifications.
“It’s kind of really disappointing that banks have not stepped up” to help consumers with savings, Walsh said. “They’re paying very little as far as interest on these savings accounts.”
The next best rate on the market comes from CIT Bank, which pays 2.45% if certain requirements are met, an analysis by Bankrate found. Customers obtain that rate if they keep a $25,000 balance or open the saving account with at least $100 and maintain $100 monthly deposits.
Challenger banks and online-only institutions increasingly have been introducing high-yield savings accounts to compete against traditional banks.
Marcus, the online-only bank from Goldman Sachs, has a 2.25% savings rate, while a Simple promotion offers 2.02%.
However, such rates may be unsustainable in the long run.
“Competing on price is a losing game—not the way to build long-term, profitable relationships with your customers,” Emmett Higdon, director of digital banking at Javelin Strategy & Research, said in an email. “In a sea of sameness for the digital banks, rates are simply one way to stand out.”
Walsh agreed with Higdon to an extent.
“The 2.8% is just a number,” Walsh said. “It’s the best number that’s out there, but it’s about fostering relationships and sending a message that we’re trying to help people get ahead and have more money.
“If we’re attracting the type of customers that want to build relationships with us, it’s more than paying for itself and sustainable.”
