Credit Karma, the company best known for its free credit monitoring service, has announced that it will now be offering a high-yield savings account.
Credit Karma Savings will have a savings rate over 20 times higher than the national average and FDIC Insurance up to $5 million, with no minimum deposit to open and no fees.
While many banks have used high-yield savings accounts to attract new customers, Credit Karma is not a bank— and they don’t have any plans to become one.
The banking services associated with the account are provided by West Virginia-based MVB Bank, Inc., Member FDIC.
Credit Karma Savings – At a Glance
- 1.90%* APY (20+ times higher than the national average, according to the FDIC)
- FDIC insured, up to $5 million
- No minimum deposit to open
- No minimum balance requirements
Customers can sign up for an account starting on October 28, 2019, the company tells nimbus33.
*As with any savings account, this rate is subject to change. Check Credit Karma’s website for the most up-to-date rate information.
How It Works
In order to offer competitive rates, Credit Karma Savings will use a network of more than 800 banks to “optimize” rates on an ongoing basis.
“From a consumer’s perspective, they have one account number and one routing number and nothing changes,” explained Jagjit Chawla, Credit Karma’s Head of Product.
Ken Lin, the founder and CEO of Credit Karma also said in a recent statement, “We want to make savings accessible to every American in the same way we have with credit scores.” Speaking on competitive rates, Lin later added, “As a company, we can’t guarantee or even know what that rate is going to be, but we can know what 800 institutions are doing. Our goal is to do that market survey and optimization each and every month.”
Fees and Charges
Even though Credit Karma claims their savings product is fee-free, it’s always a good idea to read through the fine print (especially since banks are notorious for hidden fees).
nimbus33 looked through Credit Karma’s Truth in Savings disclosure, and their story checks out. Here is a list of the (non-existent) fees associated with a Credit Karma Savings account:
|Return of Deposited or Cashed Item||$0.00|
|Dormant Account Fee||$0.00|
|Per Transaction Charge||$0.00|
|Preauthorized Transaction Fee||$0.00|
|Non-Sufficient Funds Fee||$0.00|
Data Security and Privacy
Credit Karma uses a service called Plaid to link your bank to your Credit Karma Savings account.
Upon opening an account, you will be prompted to link your bank to Credit Karma via Plaid. Your login info is encrypted end-to-end, and Credit Karma will never have access to your login credentials.
Making your initial deposit can be done in just a few clicks:
Account Design and Setup
Once we started looking around the dashboard after creating an account, it quickly became clear that the main goal of Credit Karma Savings is to get customers in the rhythm of developing positive money habits.
The main account overview page appears intentionally simple. Outside of showing balance information and deposit/withdraw buttons, the first prompt a user will see is to set up an automated deposit:
As many personal finance experts have claimed, automation is one of the easiest – and most effective – ways to make consistent progress towards your financial goals.
After hitting the button prompting us to set up an automated deposit, we were hit with a simple, yet useful, compound interest calculator:
From there, it’s easy for a user to set up a deposit amount, frequency, and dates.
Best Uses for Credit Karma Savings
A Credit Karma Savings account is best used for hitting medium to long-term financial goals:
- Saving up for a house down payment
- Annual vacations
- Setting up a 3 to 6-month emergency fund
- Saving up for a new car
For other situations, a different account may be better:
- For everyday spending and bill pay, use a checking account
- For long term retirement savings, use a brokerage account or a retirement account
- The account is not meant for businesses
How Does Credit Karma Make Money?
Credit Karma’s business model is to earn commissions for matching people to other financial products and services. For instance, the company may earn a commission for recommending a specific credit card to a member based on that person’s income, credit score, and likelihood to get approved. These types of affiliate advertisements are where the company brings in its revenue.
In addition to credit cards, Credit Karma applies the same practice to other financial products, including loans, insurance, and other banking products.
(Note to readers: nimbus33 operates on a similar business model.)
Since Credit Karma is not a bank, they do not take a cut of the APY. That means the full savings rate is passed on to customers.
So Why Offer a Savings Account?
Credit Karma won’t turn a profit (directly) from offering free high-yield savings to its members. Instead, the company views the move as an opportunity to further centralize their members’ financial lives under the Credit Karma roof.
With more than 100 million members in the U.S., Canada, and the UK, adding a savings functionality for their U.S. members has the potential to improve brand loyalty and increase the frequency that members interact with Credit Karma — which would definitely be a “win” for the company’s overall business. To learn more, visit our full Credit Karma Review.