X has launched X Money, and one thing that jumped out at me was their offer to pay you 6% APR on your deposits. At a time when high yield savings accounts and money market funds are paying 3.75% to 4%, this is a massive leap in return.
I try to keep my emergency fund, must-be-cash money working as hard as possible and often rate-shop. There are rates I see advertised for more than 4%, but they usually require direct deposit from your payroll, or have some activity requirements. For example, one bank here in Portland will give you 4.25% on your money, but you have to do direct deposit and have at least 10 debit card transactions against the account, and I think those transactions have to total a certain amount as well. For another .25%, maybe that’s worth it, but then you’re trading the 2% you can get on cash back credit cards with those transactions, and of course if you don’t do 10 transactions in a month, the rate drops to next to nothing.
When I saw that X is offering 6%, my eyes popped out of their sockets.
But then I researched a bit further.
Bad Peanut Butter
First, X is not an FDIC-insured bank. In this case, deposits are enrolled in an IntraFi ICS cash sweep program. X can distribute your money among multiple FDIC-insured banks, which it says can provide up to $10 million of aggregate FDIC coverage per ownership category.
So in theory, yes, you’re protected, but…I generally hate these once-removed relationships, and I hate them even more when it’s a “peanut butter among many banks” scheme. We just learned a lesson about that when Yotta bank depositors lost $90 million. This is perhaps not quite the same thing but it’s complicated enough that I find it unappealing.
There’s also the question about how X makes money when it’s paying out 6%. Banks compete ferociously over a tenth of a percent. Is X really do something super-creative financially that allows it to pay a full 1.5% to 2% more than everyone else? That’s enormous. Super creativity in finance makes me nervous.
Your Call is Important to Us…
I recently read about with someone who deposited money into a Goldman Sachs Marcus account because they wanted a higher yield. The money was transferred from her checking account. A few months later, she changed banks and closed that checking account. A few months after that she tried to withdraw from GS Marcus, and found it incredibly difficult to do so.
Every time she tried to connect a new bank account, she was flagged for fraud, and she spent endless hours on the phone trying to get through to someone who could fix it, and wading through a lot of lower-level functionaries who just read scripts.
I can almost guarantee that X’s customer service department is highly automated, understaffed, and hard to get ahold of because…it’s X. If I have a problem with my current money market account, I can make an appointment at my local Schwab office and look my banker eyeball-to-eyeball to get the problem fixed, and I like that.
The Fine Print That Doesn’t Pencil Out
Now let’s look at the math. X is offering 6% on accounts on only one of two situations, both of which come with fine print.
The first is if you direct deposit at least $1,000 a month. For an account that you can’t use to pay your mortgage or car note, that’s a high hurdle. Remember that direct deposit is not “transfer in” but rather “from your payroll” (they even specify the ACH code for payroll). So these aren’t wealthy retirees moving money around but rather working-age adults, for whom $1000 is presumably a significant sum. You could transfer in and transfer out I suppose but then, do you really have enough money to save here that it makes a material difference what the rate is?
The other option is to get this rate without direct deposit by being at least a Premium X subscriber. If you are already a subscriber…well, stop it, who pays for X? But anyway, that’s $360 a year.
So at 6%, the first $6,000 of your deposit effectively is canceled out (6% of $6000 is $360) because it’s the fee you pay for the privilege of depositing your money there.
I just googled and could find a lot of “limited time” 4.25% or even 4.4% HYSAs. Let’s say you can find 4% for your money.
So compare:
- $10,000 into a HYSA at 4% = $400/year
- $10,000 into X Money at 6% = $600 – $360 X Premium = $240.
In fact, you’d have to put $18,000 into X Money to make the same amount you could at a 4% HYSA or high-yield checking.
Now, if you have more than that, sure, X pencils out. But how many people keep that much cash in an emergency fund? It’s great if you do, but by the time X makes sense, a lot of people already have their 3 to 6 months’ essentials covered and should be putting that money into longer-term tax-deferred investments like Roth IRAs. Or at least parking some portion in a CD where you can squeeze out higher rates, which puts the “X pencils out” number even higher.
Adding in the risk of another Yotta plus the inevitable hassle if something goes wrong, plus the way the deal is structured…that 6% is not that juicy.
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raindog308 is a longtime community LETizen, technical writer, and self-described techno polymath. With deep roots in the *nix world, he has a passion for systems both modern and vintage, ranging from Unix, Perl, Python, and Golang to shell scripting and mainframe-era operating systems like MVS. He’s equally comfortable with relational database systems, having spent years working with Oracle, PostgreSQL, and MySQL.
As an avid user of LowEndBox providers, raindog308 runs an empire of LEBs, from tiny boxes for VPNs, to mid-sized instances for application hosting, and heavyweight servers for data storage and complex databases. He brings both technical rigor and real-world experience to every piece he writes.
Beyond the command line, raindog308 has a life-long love of German Shepherd Dogs, high-quality knives, target shooting, theology, tabletop RPGs, playing guitar, and hiking in deep, quiet forests.
His goal with every article is to help users, from beginners to seasoned sysadmins, get more value, performance, and enjoyment out of their infrastructure.
You can find him daily in the forums at LowEndTalk under the handle @raindog308.
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