Upgrade Offers 3.5% APY as Deposit Battle Heats Up

Renaud Laplanche, CEO of Upgrade, speaks at a conference in Brooklyn, New York, in 2018.

Alex Flynn | Bloomberg via Getty Images

Start by credit card Upgrade is releasing a new savings account with what it says is the highest interest rate in the country as competition for deposits intensifies, CNBC has learned.

Fintech Premier Savings Account launches Thursday with an annual percentage return of 3.5%, according to CEO Renaud Laplanche. That’s more than any account currently tracked by Bankrate.comsaid senior analyst Ted Rossman in an email.

“At 3.5%, we are by far the best savings account in the country,” Laplanche said in an interview.

Competition for deposits is beginning to intensify after a time when banks were flooded with money and had little reason to raise rates. That started to change when the Federal Reserve launched its most aggressive strategy rate increase campaign for decades, crushing borrowers and ultimately rewarding long-suffering savers.

A year ago, high-yield savings accounts had APYs around 0.5%; now many are over 2%.

The momentum is being closely watched by banking analysts as higher funding costs affect the extent to which the sector is likely to benefit from future Fed decisions. Even the big banks, including JPMorgan Chase and Wells Fargohave recently raised CD prices, unlike earlier this year when it was mostly small institutions collecting payments, Morgan Stanley said analyst Betsy Graseck in a Sept. 30 note.

“This suggests that deposit price pressure is increasingly dispersed across the banking sector as rates rise sharply,” Graseck said. “We believe deposit price competition will continue to intensify from here.”

One reason for this is that fintech players are more established now than in previous rate hike cycles, and they tend to pay the highest rates, according to the veteran analyst.

Network effects

Upgrade, a San Francisco-based startup founded by Laplanche in 2016, can afford to pay higher rates than competitors because of its network of 200 smaller banks and credit unions, according to the CEO. These institutions do not have national deposit-taking platforms and, therefore, are willing to pay more for funding, he said.

“These deposits are much more valuable to us and our smaller partner banks than they are to others,” Laplanche said. “We can make sure they have all the funding they need because we can collect deposits on their behalf.”

Ironically, the second highest rate listed by Bankrate.com this week was offered by loan club at 3.12%. Laplanche co-founded the fintech pioneer in 2006 before leaving a decade later.

Similar to other fintech companies like Chime that offer banking services through smartphone apps, Upgrade is not a bank; it partners with institutions such as Cross River Bank to offer FDIC guaranteed accounts.

The new upgrade account requires a minimum balance of $1,000 to earn the 3.5% APY. It has few restrictions apart from that; accounts are not capped and do not require users to sign up for Upgrade’s other products to take advantage of the pricing, Laplanche said.

Other fintech players offer higher rates on limited sums of money. fintech Runningfor example, offers a 4% APY, but only for savings up to $6,000.

headed higher

Laplanche said the rate for his product is expected to climb further in the coming months as the Fed tries to fight inflation by raising its benchmark rate, he said.

“We will follow what the Fed does,” the CEO said. “If they keep raising rates, there could be a time next year when we pay 4.5%.”

Upgrade, which was rated at $6.28 billion in a private funding round late last year, is best known for its credit cards that turn monthly balances into installment loans.

This feature automates the financial discipline of its users and generally reduces the interest they pay compared to traditional cards. The product seems to be gaining ground; Upgrade Was Fastest Growing Card Issuer by Outstanding Balances Among Top 50 Players, According to Industry Bulletin Nilson Report.

Upgrade will continue to create products with the goal of helping Americans through life’s events, including eventually offering car loans and mortgages, Laplanche said. And unlike many other direct-to-consumer fintech companies, Upgrade is profitable and doesn’t need to raise more funds, he said.

“The world was awash with cash and deposits just a year ago,” Laplanche said. “Now you see the opposite happening and deposits are becoming really valuable again.”

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