Date: 6/28/2023
Author: Mr. X
The American banking sector is in a period of crisis, with regional banks especially suffering. While the government is pushing for greater capital requirements for large banks, it is unclear that regional banks would be able to meet such standards. Federal Reserve Chairman Jerome Powell recently testified before Congress and suggested that there wouldn’t be such requirements for smaller banks. Still, following the collapse of Silicon Valley Bank and Signature Bank, investors are right to be nervous.
The Bank for International Settlements recently suggested that the hard part is only just beginning. “Despite the most intensive monetary policy tightening in recent memory, the last leg of the journey to restore price stability will the hardest,” it said. “There is a material risk that an inflation psychology will take hold, where wage and price increases start to reinforce each other. Interest rates may need to stay higher for longer than the public and investors expect.” The banking crisis, in other words, isn’t over.
Investors might be looking for a different place to put their money. And now there are two new opportunities – Robinhood and Apple.
Robinhood has an interest rate for uninvested cash balances to 4.65%. This is an increase from the previous rate of 4.4%. This offer is only for Gold members who pay the $5 subscription fee. It’s just 1.5% for non-gold members. One of the main issues surrounding the bank collapses were questions about FDIC insurance coverage. Robinhood uses a brokerage cash sweep service that puts customers’ cash that could theoretically surpass the FDIC insurance coverage limit for a single bank. Coverage for a single bank is $250,000. However, Robinhood says “cash deposited to these banks will be eligible for FDIC insurance up to a total maximum of $2 million as of June 1, 2023 inclusive of deposits you already hold at banks in the same ownership capacity.”
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The banks are Goldman Sachs, HSBC, Wells Fargo, Citibank, Bank of Baroda, U.S. Bank, Bank of India, and Truist Bank. M&T Bank and First Horizon Bank will reportedly be part of the system on August 1. Customers should read the details carefully and not simply assume that this is a way to get more FDIC coverage. Still, for those who are willing to pay $5.00 a month, it is an intriguing possibility for an account – if you can avoid the temptation to dump your unused cash into trades.
Apple, in partnership with Goldman Sachs, is offering a slightly less generous rate of 4.15%. The Apple Card savings account is a way for the company to build brand loyalty. An Apple phone allows one to get an Apple credit card, which in turn lets you get the savings account. Once you have these things, why get another company’s phone? Why get another credit card or bank? Apple Pay Later allows customers to make purchases in installments and Apple Wallet allows customers to get small loans of $50 to $100. Thus far, the program seems to be successful, garnering $990 million in deposits in the first four days of operation.
Both these programs may seem attractive, but only for those with self-control. As you can easily tell, both companies have a vested interest in you not keeping your money in place. Robinhood wants you to use that cash, not keep it sitting in an account. Apple is practically opening up an entirely new source of credit for customers, practically begging them to spend it on smaller purchases. The temptation to tap these services may prove overwhelming.
Yet for those looking for a relatively accessible savings account that offers high returns, Apple and Robinhood are intriguing options. At a time when we may not be able to trust banks, we need to look outside the box. And this kind of competition is good for consumers. If banks find online brokerages and computer companies muscling in on their core business, they will need to offer new features in order to compete.
Mr. X is an investment analyst working in the Washington DC area who specializes in the intersection of business and public policy. After fifteen years working in politics, he writes on a classified basis for RogueInvesting.com to bring you news on what those with power are debating, planning, and doing
