Varo Bank looks to support consumers with its high-yield savings account and consumer-first products

Varo Bank, an all-digital banking option, aims to support consumers with its high-yield savings account, Varo Believe credit-building secured card and providing emergency cash through Varo Advance.

Varo offers consumers a high-yield savings account with a competitive annual percentage yield (APY) of 1.20%. However, that could be increased to 5% for consumers who meet certain criteria. According to the FDIC, the national average APY for a savings account is just 0.08%.

To qualify for the 5% APY, consumers must have $1,000 or more in direct deposits from paychecks, pensions, or government benefits like Social Security and unemployment. Consumers will need an account balance greater than or equal to $0 at the end of the qualifying period and not have more than $5,000 in their Varo Savings Account at the close of business each business day during a calendar month.

Consumers have to maintain all three criteria during the qualifying period, which runs from the first calendar day of the month to the last. Prior to qualifying for the 5% rate, consumers will earn 1.20%, which is still on par with or better than most high-yield offerings.

For context, Marcus by Goldman Sachs recently raised the APY of its savings account to 1.20%. American Express offers an all-digital savings account with an APY of 1%, and Chime offers an APY of 0.5%. Additionally, SoFi increased its interest rate for its hybrid checking and savings account to 1.50% for direct deposit members (0.90% for consumers who don’t have direct deposits).

Earning an APY of 5%, even if it has a balance limit of $5,000, would be a big help to consumers who are struggling with the rising cost of goods, considering inflation is still at 8.6%. Having money that’s sitting in a bank account accruing interest is a good form of passive income.

Also: The 5 best high yield savings accounts: Not your standard savings

Varo, unlike other digital banks, including Chime, has a federal banking charter. That means it doesn’t have to rely on a third-party banking partner and instead is directly regulated and supervised by national regulators. It’s what allows Varo to offer such high-interest rates compared to other FinTechs. It also gives Varo more autonomy in terms of the credit products it can provide consumers with.

According to Varo founder and CEO Colin Walsh, by becoming a full bank, Varo is able to offer more to its clients during this difficult economic climate, including higher interest rates for savings accounts and loans with more affordable rates. Along with its attractive savings account offering, Varo features no overdraft fees, no minimum account balances, no monthly bank fees, no transfer fees, and no hidden fees.

“What inspired me to create Varo was recognizing that, in many ways, the banking system works just fine for people who have money, wealth and income,” Walsh told ZDNet. “But if you’re struggling to make ends meet, and you’re trying to get to the next paycheck, or you’re trying to build your credit or access credit or even just starting basic saving habits, the system is really broken.”

Walsh, coming from a background working with major financial services providers, including Wells Fargo and American Express, sought out to build a bank that did more to support the financial health of its clients rather than harming them through the use of fees.

A J.D. Power study recently found that the percentage of financially vulnerable consumers – consumers who struggle to make immediate payments and plan for the future – is increasing. 

The data analytics company also found that overall customer satisfaction with their financial service providers is decreasing due to lack of advice and guidance and from incurring predatory fees like an overdraft or insufficient fund fees.

“The customers that can least afford it are the ones having to pay $15 a month to have a bank account, or they’re getting hit with a $30 or $40 fee if they go a little bit over, to me that’s just outrageous,” Walsh said.

In addition to few fees and high-yield savings accounts, Varo offers clients the opportunity to build credit utilizing Varo Believe, the bank’s secured credit card. 

Most secured cards offer cardholders a way to build credit through positive payments after a one-time, refundable security deposit that forms the starting credit limit. However, Varo’s card links directly to a consumer’s bank account without needing to start with a deposit. The card uniquely features no APR, which means consumers won’t accrue any interest charges.

Just pay the bill on time each month, and your credit will improve. Varo offers a SafePay alert feature that lets consumers know when a payment is due to help avoid missing them.

Cardholders can even shop with a selection of merchants to earn rewards, something that not all secured cards offer. Rewards are automatically redeemed into your account as cashback when you reach $5. The same rewards program works with the standard Varo debit card offering as well.

Varo also offers Varo Advance, which lets consumers borrow up to $100 for a $5 fee. There are no service fees, interest charges, late fees, or penalty fees, and it doesn’t require a credit check meaning your credit won’t be impacted. Varo lets consumers borrow $20 for no fee so long as they have an approved account. Furthermore, Varo provides two-day early direct deposit for even more access to funds when consumers need them.

Also: Mint brings financial literacy to consumers, underserved communities to help improve money habits

“With inflation rising as quickly as it is, with interest rates going up, the cost of renting, the cost of owning, everything is getting more expensive for folks. What we’re hearing from our customers and why they’re coming to us is a few things,” Walsh said. 

“[Consumers] want to lower their expenses, but they also want to try to grow the money that they have and manage it better. So what we’ve been working really hard on, in particular, is to eliminate all of those account fees. Give people those early paychecks, giving them access to loans, low-cost interest credit where they need to advance themselves – whether it’s filling up that tank of gas or bridging to the next paycheck – but also just different, faster payment options.”

According to J.D. Power, customer satisfaction with banks is down across the industry. Consumers who bank exclusively with an all-digital bank are experiencing less satisfaction if there are no brick-and-mortar locations to utilize in addition to digital offerings. However, Walsh said Varo isn’t having any such issue and was surprised by the level of demand and enthusiasm consumers have had in embracing digital banking.

“There’s a huge population of consumers that are absolutely fine with digital-only solutions,” he said. “Gen Z is coming of age, and their whole lives have been digital. And for the most part, Millennials as well. And so we haven’t run into any issues with not having physical, brick and mortar [locations].”

Varo offers chat boxes, voice chat, email, and in-app communications for clients to get in contact, as well as a blog and an FAQ section to aid in troubleshooting. Walsh said Varo is well-positioned to support the financial health of its clients during this difficult economic cycle.

“I think the challenges are just continuing to create great experiences, continuing to support customers when they need to get a hold of [the bank] as well as through the products that they need while making them accessible,” Walsh said. “For me, that’s where we’re very focused. Making sure we’re designing these amazing experiences, creating products that are adding real value to the lives of our customers, and just being able to stay the course and do that while we’re in a noisy environment.”