Varo Bank, an all-digital banking option, aims to support consumers with its high-yield savings account, Varo Believe secured credit card and emergency liquidity provision through Varo Advance.
Varo offers consumers a high-yield savings account with a competitive Annual Percentage Yield (APY) of 1.20%. However, this could be increased to 5% for consumers who meet certain criteria. According to the FDIC, the national average APY for a savings account is just 0.08%.
To qualify for the 5% APY, consumers must have $1,000 or more in direct deposits from paychecks, pensions, or government benefits like Social Security and unemployment. Consumers will need an account balance of $0 or greater at the end of the qualifying period and will have no more than $5,000 in their Varo Savings Account at the close of business each business day at course of a calendar month.
Consumers must maintain the three criteria during the reference period, which runs from the first calendar day of the month to the last. Before qualifying for the 5% rate, consumers will earn 1.20%, which is still equal to or better than most high-yield offers.
For context, Marcus by Goldman Sachs recently raised the APY of its savings account to 1.20%. American Express offers an all-digital savings account with an APY of 1%, and Chime offers an APY of 0.5%. Additionally, SoFi has increased its interest rate for its hybrid checking and savings account to 1.50% for direct deposit members (0.90% for consumers who do not have direct deposit) .
Earning a 5% APY, even though it has a balance limit of $5,000, would be a big help for consumers struggling with rising cost of goods given inflation is still at 8 .6%. Having money in a bank account that earns interest is a good form of passive income.
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Varo, unlike other digital banks including Chime, has a federal banking charter. This means that it does not have to rely on a third-party banking partner and is directly regulated and supervised by national regulators. This is what allows Varo to offer such high interest rates compared to other FinTechs. It also gives Varo more autonomy in terms of the credit products it can offer to consumers.
According to Varo Founder and CEO Colin Walsh, by becoming a fully-fledged bank, Varo is able to offer more to its customers in this difficult economic climate, including higher interest rates for savings accounts. and loans at more affordable rates. In addition to its attractive savings account offer, Varo has no overdraft fees, no minimum account balance, no monthly bank fees, no transfer fees and no hidden fees.
“What inspired me to start Varo was recognizing that in many ways the banking system works very well for people who have money, wealth and income,” Walsh said. . ZDNet. “But if you’re struggling to make ends meet and you’re trying to get to that next paycheck, or you’re trying to build your credit or access credit or even just start building habits of basic savings, the system is really broken.”
Walsh, who comes from experience working with major financial services providers including Wells Fargo and American Express, sought to create a bank that did more to support the financial health of its customers rather than hurt them by using fees .
A JD Power study recently revealed that the percentage of financially vulnerable consumers – consumers who find it difficult to make immediate payments and plan for the future – is increasing.
The data analytics firm also found that overall customer satisfaction with their financial service providers is declining due to lack of advice and guidance and predatory charges such as overdraft or fees. insufficient funds.
“The customers who can least afford it are the ones who have to pay $15 a month to have a bank account, or they get charged a fee of $30 or $40 if they go over a little bit, for me that’s is just outrageous,” says Walsh.
In addition to a few fees and high-yield savings accounts, Varo offers its customers the opportunity to build credit using Varo Believe, the bank’s secure credit card.
Most secured cards offer cardholders a way to build credit through positive payments after a one-time, refundable security deposit that is the starting credit limit. However, Varo’s card is directly linked to a consumer’s bank account without the need to start with a deposit. The card has no APR, which means consumers will not accrue any interest charges.
Just pay the bill on time each month and your credit will improve. Varo offers a SafePay alert feature that lets consumers know when a payment is due to avoid missing them.
Cardholders can even make purchases from select merchants to earn rewards, something not all secured cards offer. Rewards are automatically redeemed in your account as cashback when you reach $5. The same rewards program also works with the standard Varo debit card offer.
Varo also offers Varo Advance, which allows consumers to borrow up to $100 for a $5 fee. There are no service charges, interest, late fees or penalties, and it doesn’t require a credit check, which means your credit won’t be affected. Varo allows consumers to borrow $20 at no cost as long as they have an approved account. Additionally, Varo offers a two-day advance direct deposit for even more access to funds when consumers need it.
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“With inflation going up as fast as it is, with interest rates going up, the cost of renting, the cost of ownership, everything is getting more expensive for people. What we’re hearing from our customers and why they come to us are a few things,” Walsh said.
“[Consumers] want to reduce their expenses, but they also want to try to grow the money they have and manage it better. So what we’ve been working really hard on, in particular, is getting rid of all those account fees. Give people those first paychecks, giving them access to loans, low-cost interest credit where they need to go – whether it’s filling up on gas or move on to the next paycheck – but also simply to different and faster payment options.”
According to JD Power, customer satisfaction with banks is down across the industry. Consumers who exclusively use an all-digital bank are less satisfied if there are no physical locations to use in addition to digital offerings. However, Walsh said Varo had no such problem and was surprised by the level of consumer demand and enthusiasm to embrace digital banking.
“There’s a huge population of consumers who are totally on board with digital-only solutions,” he said. “Gen Z is coming of age and its whole life has been digital. And for the most part, so is Gen Y. And so we haven’t had any issues with the absence of physics, bricks and mortar [locations].”
Varo offers chat boxes, voice chat, email, and in-app communications for customers to get in touch, as well as a blog and FAQ section to help with troubleshooting. Walsh said Varo is well positioned to support the financial health of its customers during this difficult economic cycle.
“I think the challenges are just creating great experiences, continuing to help customers when they need to get [the bank] as well as through the products they need while making them accessible,” Walsh said. “For me, that’s where we’re very focused. Making sure we’re designing these amazing experiences, creating products that add real value to our customers’ lives, and just being able to stay the course and do it while we’re in a noisy environment. “