Apple is giving banks a run for their money

CNN

By Nicole Goodkind, CNN

Apple and Goldman Sachs launched a new high-yield savings account on Monday that offers a 4.15% interest rate, more than 10 times higher than the US national average.

The move is one of many that Apple has made in recent months to increase its financial services footprint — adding some lofty competition for customers in the already-crowded banking sector.

The interest payout on Apple’s savings account is about 415 times more than the 0.01% that Chase and Bank of America offer their basic savings customers and could incentivize customers to move money from the big banks and into the Apple ecosystem, said Ted Rossman, a senior industry analyst at Bankrate.

That’s good news for Apple, but the company likely sees this as a way to further enhance customer loyalty and less of a way to compete against big banks, said Rossman.

Apple’s savings account is managed through Apple products and users must have Apple’s credit card, simply called Apple Card, to qualify for one. If you’re managing your credit and your banking with Apple there’s a much smaller incentive to switch to an Android phone, he explained.

“Apple is creating this flywheel effect, an ecosystem of Apple cash,” he said. “It’s very much a loyalty play because it’s a multi-level process: To get the Apple credit card you need the phone, and to get the savings account you need the credit card. This isn’t typical — if you go with American Express, you can get a credit card without opening a bank account.”

That could also give Apple more insight into the financial data of its customers, another helpful advantage for the company.

Apple’s savings account is very user-friendly: it comes with no fees, no minimum deposits and no minimum balance requirements, according to Apple, and users will be able to set up and manage their account directly in the wallet app on their iPhones. The Apple savings account through Goldman is also insured by the Federal Deposit Insurance Corporation.

Chase and Bank Of America likely aren’t quaking in their boots but this could move the needle on stubbornly low interest rate payouts.

The biggest banks in the United States have refused to shift their savings rates higher, even as the Federal Reserve has lifted its benchmark rate to between 4.75 and 5% to combat sticky inflation.

That’s likely because they have more cash than they need: Pandemic stimulus money, lower demand for borrowing, and an influx of recent deposits after the regional banking crisis mean they don’t have much incentive to pay higher interest rates to woo more depositors.

And Apple’s savings account is hardly the best out there, either. Bankrate puts it at number 11 on its list of best interest rates. UFB Direct offers a savings account with more than a 5% annual percentage yield. Vio Bank and CIT Bank offer 4.77% and 4.75% interest rates.

But those aren’t household names.

“The fact that Apple is involved makes it news,” said Rossman. “High-yield accounts have been available for a while, but this makes them more mainstream. From an industry perspective that’s notable and may incentivize some change.”

A suite of financial services: The news comes two weeks after Apple announced it would enter the increasingly popular “buy now, pay later” industry. Apple Pay Later allows customers to pay for their purchases in four installments over six weeks.

The program also allows users to manage their payments through Apple Wallet, and they can use the app to apply for loans between $50 and $1,000 which they can use for in-app and online purchases at stores that accept Apple Pay.

China’s GDP beat

US House Speaker Kevin McCarthy on Monday expressed concern over recent geopolitical developments between France, Brazil and China, as well as a move away from the dollar as a reserve currency (Read more on that here.)

Meanwhile, China’s economy got off to a solid start in 2023, as consumers went on a spending spree after three years of strict pandemic restrictions ended, my colleague Laura He reports.

Gross domestic product grew by 4.5% in the first quarter from a year ago, according to the National Bureau of Statistics on Tuesday. That beat the estimate of 4% growth from a Reuters poll of economists.

But private investment barely budged and youth unemployment surged to the second highest level on record, indicating the country’s private sector employers are still wary about longer term prospects.

Consumption posted the strongest rebound. Retail sales jumped 10.6% in March from a year earlier, the highest level of growth since June 2021. In the January to March months, retail sales grew 5.8%, mainly lifted by a surge in revenue from the catering service industry.

“The combination of a steady uptick in consumer confidence as well as the still-incomplete release of pent-up demand suggest to us that the consumer-led recovery still has room to run,” said Louise Loo, China lead economist for Oxford Economics.

However, some analysts believe the strong growth reported in the first quarter was the product of “backloading” of economic activity from the fourth quarter of 2022, which was weighed down by pandemic restrictions and then a chaotic reopening.

“Our core view is that China’s economy is deflationary,” said Raymond Yeung, chief economist for Greater China at ANZ Research.

If adjustments are made to account for the impact of delayed economic activity, GDP growth in the first quarter could have been just 2.6%, he said.

All eyes on Schwab

Friday brought a slew of positive earnings reports from the largest banks in the country, but by Monday morning investors were holding their breath once more as they awaited first quarter results from Charles Schwab.

The company’s stock has plunged nearly 37% so far this year as fear of the fallout from the recent collapse of Silicon Valley Bank and Signature Bank has sparked fears of contagion across the industry.

The news was mixed. The brokerage company announced that its net income rose by 14% and its revenue grew by 10% from last year.

But Schwab reported that deposits were down 30% from last year, and had fallen by about $41 billion since last quarter.

“Our first quarter revenue picture reflected the company’s sustained business momentum and the benefits of rising interest rates, partially offset by clients’ asset allocation decisions,” said Schwab’s CFO Peter Crawford in a statement Monday.

Still, investors appeared relieved. Shares of Schwab ended the day up nearly 4%.

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