Recently, as the capital markets crashed due to COVID-19, cash has returned to the king’s throne. However, holding cash itself isn’t effective given a 2%-3% historical inflation rate. Holding something as liquid as cash but with a higher return should be the way to go. Instead of having your money ride the roller coaster with public panic and upsetting news, high-yield saving accounts have become a safe harbor for the emergency funds during uncertain times.
Below I will conduct a product review of a high-yield savings account product provided by Goldman Sachs and explain why this is more compelling than its competitors.
What is a high yield savings account?
According to Credit Karma, a high-yield savings account is a bank account that earns you a higher interest rate for deposits than a traditional savings account. It does not necessarily refer to one specific category of products; It simply means you get a higher return.
Get started with this product
After some due diligence, I’d recommend the high-yield saving account product offered by Goldman Sachs. It provides highly user-friendly online banking services with a high-interest rate. As other similar products cut APY to as low as 0.5%, Goldman has still managed to sustain its APY at 1.7%. Plus, the account opening process is super easy. It took me only 3 min to have my account up and running. A lot of millennials don’t like paying for services and being bound by restrictions. Perfect! You don’t need to pay for any account service fee. Nor do you need to maintain a minimum balance to enjoy the high APY. Furthermore the user flow for transferring funds and checking balance and statements is frictionless and intuitive. It’s easy to navigate information in the APP and through the website. Besides all the perks mentioned, this product is FDIC insured. That means your deposit is insured for up to $250,000. All in all, this product is self-explanatory, requiring little or no instruction to get started
Comparison between GS product and other products
Financial products served through digital platforms should yield the same benefits as traditional financial products but with more digital convenience. Users should not expect fewer financial benefits simply because of the nicer interface. Ultimately, users care about making money. Otherwise, they could just hold cash.
The charts below serve to contextualize this product’s positioning, benefits, and usability relative to its competition:
High-yield Saving Account Financial Factsheet
High-yield Saving Account Usability Assessment
As demonstrated in the charts above, it’s clear Marcus is superior in APY and user experience compared to its competitors. In general, products offered by FinTech firms are more user friendly and better designed. Robinhood and Credit Karma do a good job of onboarding the customers. However, they failed to prove their resilience in terms of the APY, dropping their APY too much too quickly. American Express, on the other hand, keeps APY at a competitive level but the registration process is lengthy and tedious. According to a study by Microsoft, users’ attention span is now 8 seconds, down from 12 seconds in 2000. Therefore, the longer the registration process , the lower conversion rate the product will achieve. What’s worse, American Express doesn’t even have an app for savings accounts, so you’ll have to go to the website to check account balances. These days, users want to do almost everything through their phones. Capital One is competitive to Marcus with respect to user experience, but offers lower APY. Then why not go for a higher APY?
Key Advantage: Stable APY
Non-fixed APY is part of the deal for high yield savings accounts but it is still sad to see once eye-popping deals are gone the moment the Federal Reserve announces rate cuts. FinTech startups were the first to react upon the news, cutting APY drastically. Banks responded to the changes as well, but at a milder level. Why are savings products provided by FinTech startups more vulnerable during difficult times? Because most FinTech startups are not banks. Their high-yield savings products are provided through collaboration with a bank that provides such products. In this situation, FinTech startups act as a middleman to funnel the money to the partner banks. One of the main business models of banks is making money through the interest rate difference between deposits and loans. Banks offer you a low but decent interest rate in exchange for your deposits and use your money to offer loans at a much higher interest rate. When the economic environment changes, banks have more flexibility to justify their portfolio to weather the market volatility. However, FinTech startups that rely on external banks for savings products have little choice but to take what is offered by their partners.
FinTech companies have more experience in digital consumer service. During good times, FinTech companies are probably better options because they are easy to use and provide as high APY as banks do. During tough times, FinTech companies are more vulnerable due to lack of financial toolkits. In the long term, it is more likely to have a stabilized APY from a high-yield savings account provided by the banks than by the FinTech Startups.