A new online bank is touting 4% on deposits, with certain conditions attached

We all know that there is almost no point in gaining by keeping money in the bank.

The average interest rate on a savings account is just 0.06%, according to the FDIC, even as the Federal Reserve slowly raises its benchmark interest rate. However, a new online bank offers a rate that beats all the rest, at least for users willing to work for it.

Beam, a San Francisco-based startup backed by an FDIC-insured partner bank, plans to launch a national savings account this fall with an interest rate of up to 4%. This is 67 times more than a traditional bank. He says he can do this by reducing overhead costs, such as those incurred by running bank branches and major marketing campaigns.

“We reduce unnecessary costs and expenses and pass these savings on to customers in the form of higher interest,” says Yinan Du, Founder and CEO of Beam. “Banks are not the most efficient entities.”

This same argument has been made many times before by online banks like Ally and Bank of the Internet, which offer interest rates of around 1% on savings accounts. Du insists that he still has to tighten his belt.

The Beam account is meant to be complementary to a checking account and an everyday savings account, but savers interested in setting and forgetting their money will find there’s work to be done to catch the rate of 4%. Beam promises all users a 2% interest rate up to $50,000. To earn more than that, Du says, users will essentially be rewarded for logging in and engaging with the app. He declined to share too many details ahead of launch.

However, it is clear that the main way for users to earn a higher interest rate is by telling others about Beam. Remember that the company tries to cut costs and relies on its users for marketing. For example, those who publicized Beam before launch could earn a 7% interest rate for the first 100 days and the chance to move up the 20,000-person waitlist.

Du says that it is possible to earn a higher rate by simply spending time on the app. “The product is designed so that if you don’t have any friends, you can earn higher interest,” he says. “It doesn’t necessarily depend on references. We try to be really consumer-centric.”

Deposits will be held by an FDIC-insured partner bank, which means balances up to $250,000 will be covered if Beam or the bank fails. Beam declined to share publicly which bank it partners with ahead of its launch, except to say it is a US-based bank that has been in business for decades. Users should not deposit money with Beam until they have heard from the banking partner.

“I find it curious that they’re starting to come forward before they can release this information, because that’s an obvious first question,” says Greg McBride, chief financial analyst at Bankrate.

Beam, which collects service fees to carry out marketing, customer service and product development tasks, will be under pressure to prove to its partner bank that it is a profitable business. He says he will not be selling credit cards or other financial products from the bank or other financial institutions at this time. However, it could come. According to its privacy policy, users can expect marketing emails from affiliated third parties that take into account their creditworthiness and other personal information.

Many community banks and credit unions have also competed for consumers by eliminating nasty fees and enticing dangling rates in an effort to set themselves apart from the big national banks.

For example, the Texoma Community Credit Union, based in Wichita Falls, Texas, offers a 3.51% interest rate on a checking account through a partnership with a company called Kasasa. However, users who do not live in the area where the credit union is located will find that they are not eligible. There are also often certain requirements, such as using your debit card a certain number of times per month, in order to earn the full interest rate.

Other fintech startups have also tried, unsuccessfully, to offer more attractive rewards and rates on checking and savings accounts. PerkStreet, which once offered generous rewards on online accounts and was endorsed by Dave Ramsey, went bankrupt in 2013. She could no longer afford to pay rewards to her clients. Another company, SmartyPig, has halved its rate on online savings accounts to around 1%.

Du, an MIT and Harvard Business School graduate who previously worked at JP Morgan and KKR, said he founded Beam because it irritated him that financial institutions were pocketing profits that should have been passed on to consumers. He previously founded and ran a daily deals site in China that grew explosively before disappearing in 2013.

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David A. Albanese