In the wake of several bank collapses, many have wondered where and how to store their hard-earned money safely. Charles Schwab, State Street, and M&T saw $60 billion in combined bank deposit outflows in Q1 as customers moved their money in search of safe parking and higher returns. First Republic Bank’s net outflows have exceeded $100 billion in recent weeks, and the bank was recently sold to JP Morgan as a result.
Brokerages may be viable for storing savings as they offer higher yields and better account protection than traditional banks. Smaller and more regional banks are searching for more deposits, which benefits brokerage startups like Betterment and Wealthfront by allowing them to negotiate better savings rates from their partner banks. The FDIC does not insure brokerages, but customers can receive coverage through cash sweep programs offered in most brokerage accounts. Cash sweeps transfer funds not invested in stocks or other assets to partner banks, each providing up to $250K in FDIC insurance. Splitting funds in this way across banks means more total FDIC coverage for the customer.
Wealthfront increases its cash account yield when the Federal Reserve raises the central bank rate. How much of that increase goes to customers depends on the rate bank partners are willing to pay Wealthfront. In March, Wealthfront raised its rate to 4.3% from 4.05%, consecutively passing all the increases to customers. It announced its increasing it to 4.55% on May 3rd. To learn more about Wealthfront, check out our memo.
In March, Betterment doubled its coverage to $2 million and $4 million for joint accounts for its cash accounts, which can earn a 4.20% APY. Robinhood said it would protect customers up to $1.5 million (a number which will increase to $2 million on or after June 1, 2023) in insured deposits and provide 4% on certain accounts for Robinhood Gold members, a monthly subscription service for uninvested cash. More recently, in April, Apple announced that Apple Card users could choose to grow their Daily Cash rewards with a savings account from Goldman Sachs, which offers a high-yield APY of 4.15%. This offering has no fees, minimum deposits, or minimum balance requirements; users can set up and manage their savings account directly from Apple Card in Wallet. Apple has brought in ~$990 million in deposits over its first 4 days, with nearly $400 million of that coming on launch day alone.
On Thursday, regional bank stocks dropped despite the Federal Reserve’s assurances of the banking system’s stability. Investors are concerned the regional banking issues may expand and affect the broader economy. Amidst the uncertainty, brokerages seem like an increasingly convenient and safe option to park money and earn yields higher than the big banks offer.
Important Disclosures
This material has been distributed solely for informational and educational purposes only and is not a solicitation or an offer to buy any security or to participate in any trading strategy. All material presented is compiled from sources believed to be reliable, but accuracy, adequacy, or completeness cannot be guaranteed, and Contrary LLC (Contrary LLC, together with its affiliates, “Contrary”) makes no representation as to its accuracy, adequacy, or completeness.
The information herein is based on Contrary beliefs, as well as certain assumptions regarding future events based on information available to Contrary on a formal and informal basis as of the date of this publication. The material may include projections or other forward-looking statements regarding future events, targets or expectations. Past performance of a company is no guarantee of future results. There is no guarantee that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein will be realized. Actual experience may not reflect all of these opinions, forecasts, projections, risk assumptions, or commentary.
Contrary shall have no responsibility for: (i) determining that any opinions, forecasts, projections, risk assumptions, or commentary discussed herein is suitable for any particular reader; (ii) monitoring whether any opinions, forecasts, projections, risk assumptions, or commentary discussed herein continues to be suitable for any reader; or (iii) tailoring any opinions, forecasts, projections, risk assumptions, or commentary discussed herein to any particular reader’s objectives, guidelines, or restrictions. Receipt of this material does not, by itself, imply that Contrary has an advisory agreement, oral or otherwise, with any reader.
Contrary is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940. The registration of Contrary in no way implies a certain level of skill or expertise or that the SEC has endorsed Contrary. Investment decisions for Contrary clients are made by Contrary. Please note that, although Contrary manages assets on behalf of Contrary clients, Contrary clients may take any position (whether positive or negative) with respect to the company described in this material. The information provided in this material does not represent any investment strategy that Contrary manages on behalf of, or recommends to, its clients.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, company or product made reference to directly or indirectly in this material, will be profitable, equal any corresponding indicated performance level(s), or be suitable for your portfolio. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Investors should seek financial advice regarding the appropriateness of investing in any security of the company discussed in this presentation.
Please see www.contrary.com/legal for additional important information.
