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What Are the Details?
Credit Karma Savings is a high-yield savings account being offered to Credit Karma members for free. Customers of Credit Karma will be able to manage their savings account funds via the Credit Karma app and/or website.
In addition, members won’t need to worry about competitive rates since Credit Karma is offering a competitive rate and will continue to monitor market rates so their members can stay competitive.
Credit Karma is offering a 0.58% APY–which is significantly better than savings accounts on average across the nation (currently 0.09%). Credit Karma Savings also won’t charge any fees and won’t require any minimum deposit.
They’ll also use their vast network of over 800 banks to optimize their APY so their customers stay competitive.
What Does the App Look Like?
Here are some screenshots from the new savings app:
Why Is Credit Karma Getting into Savings?
Historically, Credit Karma has focused on providing consumers with free credit scores and recommendations on how to improve their credit.
But savings rates are down significantly.
In fact, adults under 34 have abysmal savings rates compared to what you’d imagine after about 10 years in the workforce.
And lower credit scores mean even lower savings. One reason for that is your loan and credit card rates will be higher with a poor credit score.
So there’s a strong correlation between the two.
And since Credit Karma now has over 100 million members across the world, it seems to make sense that they’d provide their own, in-house solution for helping people boost their savings in addition to improving credit and paying down debt.
So Is Credit Karma a Bank Now?
Credit Karma is not a bank. They will continue to operate as a financial technology (or, “fintech”) company and partner with an actual bank to offer their savings account. Companies like Wealthfront and Betterment are doing the same thing, if you’ve seen their new savings account options.
Credit Karma will be partnering with MVB Bank, based out of Virginia, to offer their savings account. The account will be managed and serviced through Credit Karma, but your funds will be held with MVB Bank.
This allows you to get FDIC Insurance on your deposits for up to $5 million. This way you never have to worry about losing your money.
How Does Credit Karma Make Money?
Credit Karma will continue to make money on its referrals through their app (when you’re viewing your credit score and options to help improve it). With the Credit Karma Savings, Credit Karma says that they’ll take a small portion of the overall APY. You’ll still get 100% of all interest earned, though.
How Does Credit Karma Compare?
Credit Karma doesn’t offer the highest APY on the market right now, but they’re still very competitive. Here’s another one of our favorites:
Currently offering APY, the CIT Savings Builder account gives you a competitive rate in one of two ways–either make a monthly deposit of at least $100 or a one-time, $25,000 deposit (and keep it there).
Why Should I Bother?
It may seem like an extra (and annoying) step to open yet another savings account, but the minute or two it will take you to do it is well worth it. Let’s look at some math to see why.
Let’s say you have $5,000 to deposit initially and you plan to deposit another $100 every month over the course of 10 years.
Most banks, as noted above, offer a savings rate of about 0.09%.
If you keep your money in that account for 10 years at that rate with $100 a month in deposits, you’ll end up earning $98.87 in interest after a decade. With deposits, your total balance will be $17,098.87.
Now let’s say you instead deposit with Credit Karma at 0.56% APY. Same $5,000 initial deposit and $100 per month. After 10 years, you’ll have earned $630.44 in interest–6 times the amount you’d earn with your traditional bank. Your total balance would then be $17,630.44.
As you can see, there’s a significant difference in interest earned and a massive benefit to moving your money to a high-interest savings account like Credit Karma Savings.
Odds are, with over 100 million members worldwide, you’re a member of Credit Karma. It’s an excellent service that costs you nothing, and now that they offer a savings account, it’s hard to not recommend it.
We definitely encourage you to shop around, but if you’re looking for a great way to save money and earn a competitive rate of interest, give Credit Karma Savings a shot.
*When you link a bank account to a new Credit Karma High Yield Savings Account and have funded $1 or more to your High Yield Savings Account, you will be automatically entered to win $20,000! See terms and conditions here or on the Credit Karma Savings page.