The Importance of a Great Digital Onboarding Journey
Revolut’s 5% Savings Vaults – Spend Money to Make Money
5.00% APY, 25 times the national average; wouldn’t it be nice to earn that high of an interest rate on your savings account? That is exactly what Revolut is promoting with their new Savings Vaults product.
Teaser rates like those offered by Revolut are nothing new. For example, First Financial Northwest Bank in Washington offers a 12% rate on the first $1,200 invested in their Special 12% Checking account, which is one of the highest rates in the nation for a liquid product. However, the rate reverts to a low 0.10% APY for balances over $1,200. In total, thirty-six financial institutions in our database pay 5.00% APY or above, and they all work based on this lower-dollar tiering structure.
Revolut’s Savings Vault teaser rates are different. However, different doesn’t mean easy because there are still requirements consumers must meet to earn the highest rate.
Revolut: Users can build a Vault and choose how they fund it, obtained via our Digital Banking Hub
Here’s how the offer works
The base rate of Savings Vaults is 0.25% APY on all balances for Standard Plan users. This base rate in itself is competitive, considering the national average is 0.20% on liquid savings account as reported in the our Interest Rate Review, published 11/03/20.
Customers can increase their base rate to 0.50% APY on all balances if they sign up for one of Revolut’s superior plans, Premium or Metal, which cost between $9.99 and $19.99 per month and come with numerous other features.
The meat of Revolut’s exceptionally high rate comes from a unique value proposition that features a 4.50% bonus rate bump, which is based on how much customers spent with their Revolut debit card in the previous month. In other words, the balance that is eligible for the bonus rate of 4.50% APY is determined by the amount customers spend with their debit cards.
For example, if a customer has $1,000 in their Savings Vault and they spent $200 in debit card purchases the previous month, they will earn the 4.50% bonus rate on $200 and the base rates of 0.25% or 0.50% on the entire balance of the Savings Vault.
And if a customer spends more on their debit card than they have in their Savings Vault, the entire balance in their account is eligible for the 4.50% savings bonus.
The bonus is calculated on the balance for each individual day. For the first calendar month after the account is opened, customers’ eligible funds are set at $1,000 or to the amount a customer spent in the previous month, whichever is greater.
Beside the unique criteria to earn the bonus rate, the teaser rates of Savings Vaults are different because there is no balance limit. As long as the spending matches the savings balance, consumers can earn the bonus on any balance in the account. And right there is the catch ꟷ most consumers are not going to spend large amounts on their debit card every month to match any large balances they may have in their Savings Vault. And Revolut is probably counting on that.
Fintechs are innovating more than just digital capabilities
Revolut, like other digital-only challenger banks, is traditionally known for offering a great user experience and innovative digital functionality. This new exceptional savings rate for U.S. customers, however, makes them a serious savings contender. Revolut has set up the Savings Vaults bonus rate structure to encourage consumers to make their card the primary card in their wallets.
Revolut has created easy ways to fund the savings account with accelerated round-ups, direct deposit, and auto transfers. Revolut is also making up some of their deposit liability with the interchange fees they earn on the Revolut debit card.
Clearly looking to innovate further than just user experience, Revolut has built a very interesting bonus rate offer. We look forward to seeing how other financial institutions will respond, either by offering a similar savings account soon, or creating something even more innovative.