Neobank and credit card startup Upgrade last month launched a new high-yield savings account, offering a 3.5% annual percentage yield (APY) to consumers who maintain a minimum balance of $1,000.
The yield is among the highest in the industry, and one the neobank is able to offer its customers by leveraging its network of more than 200 community banks and credit unions, Upgrade CEO Renaud Laplanche said.
Banks were awash with deposits during the pandemic, boosted largely by government stimulus programs, but that’s no longer the case, said Laplanche, who founded LendingClub in 2006 before launching Upgrade in 2017.
Deposits have become more valuable to smaller institutions in the current high-interest rate environment, and it’s something they’re willing to pay more for, he said.
Upgrade’s flagship product is a credit card that allows users to turn their balances into installment loans.
The fintech, which is not a bank, sells the loans to its partner banks. It’s taking a similar approach for its new high-yield savings account by sweeping funds into partner banks who are hungry for deposits, Laplanche said.
“It's been harder to get deposits now than it has been over the last two or three years,” he said. “We have essentially become a marketing engine for [small institutions], because we have a bigger brand, a national brand and access to online deposit gathering resources.”
Upgrade’s new savings account comes as larger institutions are still offering “next to nothing” on deposits, said Ted Rossman, a senior industry analyst at Bankrate.com.
“They have all the deposits they need,” he said, noting the national average savings yield is 0.16%. “But smaller financial institutions compete aggressively for deposits. They don’t have branches on every corner or their name on the stadium or national TV ads. They compete on rates, and in this time of rising rates, the competition is intense.”
Laplanche called his model a win-win situation for consumers and community banks.
“Instead of matching assets and liabilities within our own balance sheet like we would if we were a bank, we are now matching assets and liabilities, loans and deposits at the network level in a distributed way. Some of our partners, at any point in time, may need more deposits or more loans, and so we can allocate that way,” he said. “We give these smaller banks and credit unions the deposits they need and our customers have benefited from it.”
Upgrade’s high-yield savings account was an industry high at the time it was announced — but only for a short while, noted Rossman, who said there is a tremendous amount of competition in the high-yield savings space.
“Upgrade’s 3.50% was the highest yield for just a matter of hours and then Salem Five and Dollar Savings Direct matched them that same day,” he said. “Shortly thereafter, BrioDirect and Bask leapfrogged all of them.”
BrioDirect’s high-yield account touts a 3.75% rate, while Bask Bank’s generates 3.60%.
