Startup Public offers cash accounts with 5% return
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Public, the investing startup, is getting in on the high-yield savings game.
Driving the news: Public announced on Thursday that it would offer a zero-fee, no minimum or maximum balance cash account to anyone who signs up, with a generous 5.1% annual percentage yield. A Public subscription is not required.
The details: Public is offering account protection for up to $5 million, multiples higher than the standard FDIC bulwark (which became a major focus after the meltdown of Silicon Valley Bank in March).
- "After launching Treasury Accounts earlier this year, offering access to T-Bills and Bonds more recently, we've seen significant interest in yield-bearing asset classes and account types," Public said in a statement.
Why it matters: SVB's sudden collapse — combined with the Federal Reserve's aggressive rate hiking campaign which just came to a close — touched off a veritable gold rush for retail consumers seeking shelter (and returns) in yield-bearing alternative instruments.
- Distressed regional banks saw deposits flow to other banks, with at least some of that money settling in high-yielding savings and money market accounts.
- That drew attention to financial institutions — and even some non-banks like American Express and Apple — offering higher-yielding options to lure new clients, and keep existing ones.
Yes, but: With the Fed's tightening campaign coming to an end, the central bank is widely expected to start cutting rates in 2024.
- In an environment of disinflation and (marginally) lower rates, it suggests some institutions might not feel the same pressure to offer juicy returns to yield-hungry consumers.
What they're saying: "Once rates actually drop, it will affect most high yield accounts," Leif Abraham, co-founder and co-CEO of Public, tells Axios in an email.
- "It's obviously a decision each company will [make] on their own. But as most companies will likely want to keep their margin on the rate the same, they will drop the rate offered to the customer accordingly."
- Lower rates won't take pressure off the need to remain competitive, he adds. "Cash yield in any form has been a big driver of deposits for all brokerages."
