San Francisco-based Beam Bank is the pink unicorn among online banks. It offers up to 4 percent APR on FDIC-insured savings accounts which is much more than its competitors. The bank is still in its formative stage, and it plans to begin operations later in 2017. Thousands of consumers have already put themselves on the bank’s waiting list to open a savings account.
What is Beam’s Plan?
Beam Bank mirrors the business plan of other online banks by trying to minimize costs. Online banks accomplish this by avoiding brick-and-mortar facilities and the employees needed to staff them. Instead, Beam is a virtual bank that interacts with its customers via its website, by email, and by text message.
The account is bare-bones: No checks, no debit card, no fees, and no minimum balance. It pays a minimum of 2 percent on up to $50,000. Higher rates are available as explained below. Interest compounds and is paid daily – most other online banks also compound interest daily but pay it monthly.
Many other online banks have not been able to approach a 4 percent APR. Some of Beam’s online competitors include CIT Bank, EverBank, Barclays, and Goldman Sachs Bank, with APRs currently as high as 1.35 percent.
The closest competition seems to be a 3.51 percent rate from a Texoma Community Credit Union checking account, but is only available to local Texas residents and requires customers to use a debit card several times each month. Traditional banks are not even in the high-interest game, with the average interest rate on savings accounts at 0.06 percent, and plenty of fees to boot.
Beam’s secret appears to be ultra-belt-tightening coupled with additional sources of revenue. The bank founder, Yinan Du, argues that, with gross margins of 4 to 5 percent, an online bank can afford to pay the 2 percent minimum offered by Beam by increasing efficiency. Extracting 4 percent interest from Beam requires account holders to do a little work.
This work involves daily engagement with Beam via its smartphone app. While the nature of these engagement features is still somewhat vague, they involve rewards and bonuses you can earn every day. By taking advantage of these features you can boost your APY to as much as 4 percent.
Forbes Magazine speculates customers will have to tell others about Beam in order to earn the full 4 percent. This makes sense to the extent that it saves Beam marketing dollars that it can repurpose to account holders. However, founder Du claims you don’t need to have friends to still earn high interest. Time will tell how much you can earn without making referrals.
Beam is essentially a front-end for a “real” bank where the FDIC-protected accounts will reside. The identity of the partner bank has yet to be revealed, and some might find it prudent to withhold investing until the partner is identified. Beam teased that the partner is a U.S.-based bank with decades of operations.
Beam expects to earn servicing fees from the partner bank for performing product development, marketing, and customer service duties. The partner bank will presumably have to be convinced that Beam is earning its fee. It’s also possible that Beam will sell its account list to third parties for marketing purposes. Beam says it’s not going to be offering credit cards and other financial products in the short term, but that too might change.
Currently, folks interested in opening a Beam account are invited to join a first-come, first-served waiting list. As of mid-October, more than 33,000 thrifty souls have signed up. You can move up the list by inviting friends to join – you do so by sharing an email link with each referred person. As an extra incentive, the top 10 referrers will receive 7 percent APY for the first 100 days.
Beam is different from other online banks and very different from the brick-and-mortar variety. The latter pay low interest and charge heavy fees. Almost all other banks credit interest monthly, whereas Beam pays you overnight, every night. If you are willing to engage the Beam smartphone app every day, you can earn as much as 4 percent.
If that seems to be too good to be true, well, it might be. No one has tried this particular model before, and it’s hard to know whether Beam can cut expenses and generate revenue streams to the extent necessary to maintain the 4 percent rate. Time will tell if this banking model eventually pays off for everyone involved.