Fintech firm Upgrade offers top U.S. savings rate of 3.5% as competition for deposits heats up

Finance

Upgrade CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.
Alex Flynn | Bloomberg via Getty Images

Credit-card startup Upgrade is releasing a new savings account with what it says is the country’s top interest rate as competition for deposits heats up, CNBC has learned.

The fintech firm’s Premier Savings account is being launched Thursday with a 3.5% annual percentage yield, according to CEO Renaud Laplanche. That is higher than any account currently tracked by Bankrate.com, senior analyst Ted Rossman said in an e-mail.

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

Competition for deposits is beginning to heat up after an era in which banks were flooded with cash and had little reason to raise rates. That started to change as the Federal Reserve embarked on its most aggressive rate-boosting campaign in decades, squeezing borrowers and finally rewarding long-suffering savers.

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

The dynamic is closely watched by banking analysts because higher funding costs affect how much the industry stands to benefit from future Fed moves. Even big banks, including JPMorgan Chase and Wells Fargo, have boosted rates for CDs recently, unlike earlier this year when it was mostly smaller institutions raising payouts, Morgan Stanley analyst Betsy Graseck said in a Sept. 30 note.

“This suggests that deposit-pricing pressure is becoming more widely dispersed across the banking industry as rates move sharply higher,” Graseck said. “We believe deposit price competition will continue intensifying from here.”

One reason for that is because fintech players are more established now than in previous rate-hiking 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 rivals because of its network of 200 small banks and credit unions, according to the CEO. These institutions don’t have national deposit-gathering platforms and, as a result, are willing to pay more for funding, he said.  

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

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

Similar to other fintech firms like Chime which offer banking services through smartphone apps, Upgrade isn’t a bank; it partners with institutions including Cross River Bank to offer FDIC-backed accounts.

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

Other fintech players offer higher rates on limited amounts of money. Fintech firm Current, for instance, offers a 4% APY, but only for savings up to $6,000.

Headed higher

Laplanche said his product’s rate is likely to climb further in coming months as the Fed attempts to wrangle inflation by boosting its benchmark rate, he said.

“We’ll follow along with what the Fed is doing,” the CEO said. “If they continue to raise rates, there might be a point next year where we’ll pay 4.5%.”

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

That feature automates financial discipline for its users and generally reduces the interest they pay versus traditional cards. The product appears to be gaining traction; Upgrade was the fastest-growing card issuer by outstanding balances among the top 50 players, according to industry newsletter Nilson Report.

Upgrade will continue to build products with the aim of helping Americans navigate life events, including by eventually offering car loans and mortgages, Laplanche said. And unlike many other direct-to-consumer fintech firms, Upgrade is profitable and doesn’t need to raise more funding, he said.

“The world was awash with liquidity and deposits just a year ago,” Laplanche said. “Now you’re seeing the opposite is happening and deposits are becoming really valuable again.”

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