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Fintech Revolut Dangles Market-Beating 5% Rate Bait to U.S. Savers

On Thursday, Revolut announced that American savers would benefit from a brand new 4.5% “bonus” on top of the base annual rates of interest they enjoy. Payouts are given on a monthly basis after calculations are done daily based on an annualized rate.

Revolut offers a 5% rate on savings its subscribers two accounts “Premium” costing $10 and “Metal” costing $17 while a 4.75% rate to its standard customers. Bankrate, a personal finance website, revealed that the 5% rate is far above 0.83% which is the current market-leading rate that Vio online bank offers, as well as 50 times the national average of 0.09%.

Instead of using lending to earn interest, as it is traditionally done the London-based investing platform intends to use its revenues to cover for the 4.5% bonus payout. Specifically, Interchange fees, which account for 63% of its income, charged from merchants each time a customer utilizes the firm’s card would be used to cater for the bonus.

“The model is designed to ensure that customers need to use Revolut as a primary spending card to benefit from the full rate. Because interchange is so high in the U.S., we won’t create loss-making customers,” Revolut spokesperson spoke about this cash-intensive model during a CNBC interview.

However, the firm’s savings “bonus” has restrictions; only a paying user can earn the top 5% rate and only the total previous month spending warrant additional interest. For instance, if the month before an interest payment as a user had $400 in the account but just decided to spend $100 then only $100 would be eligible for the 4.5% bonus.

As the Federal Reserve has tried to cut interest rates close to zero so as to heal the Covid-19 crisis ravaged economy, online banks are the better bet in comparison to traditional ones in terms of savings returns according to personal finance experts’ opinions.

In a crisis situation, is looking for a way to get the best possible return on their money, AJ Bell senior analyst Tom Selby told CNBC, but fortunately, newer banking entrants such as fintechs offer possibly the highest rates. He also added that investors should not fall prey to scammers but should look to bona fide and regulated institutions to entrust their money.

Revolut is not a typical bank but an e-money institution that holds customer deposits via Metropolitan Commercial Bank, a federally-regulated lender. Its model incentivizes users to make more spending on their accounts. Over the years, other neobanks such as Monzo and Chime, have faced a rough time trying to convice their customers not to put their salaries into other conventional accounts but to use them as a primary accounts.

Revolut, a European crypto-friendly internet banking application founded in 2015, conducted a fresh funding round earlier in 2020 securing a valuation of $5.5 billion. When governments worldwide, there enforcing pandemic lockdowns, the company in March decided to extend its operation in the U.S.

Fintech Revolut Dangles Market-Beating 5% Rate Bait to U.S. Savers

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