Step, the digital banking service geared toward teens and young adults, is now offering a 5% rate on its savings accounts.
With just 1 in 3 Americans having adequate savings for emergencies, Step is among dozens of startups, like Current, Greenlight, Super.com and Hyve, focused on helping people save.
There are no monthly fees and no minimum balance requirements on the Step accounts, and customers who open an FDIC-insured savings account with up to $250,000. However, to secure that 5%, users have to set up a monthly direct deposit of $500 or more from a payroll provider or employer.
“The direct deposit is to encourage people to utilize the full suite of Step products,” CJ MacDonald, co-founder and CEO of Step, told TechCrunch.
And to be clear, “the savings percentage is not interest, but instead earned as cash rewards directly funded and managed by Step,” according to the company.
Speaking of rewards, also new is Step’s elevated rewards program. Customers who qualify for the 5% on their savings will also earn 3x points on purchases at select merchants; 2x points on restaurant dining, food delivery and charitable donations; and 1x points on entertainment, streaming and gaming.
The news comes about a month after Apple launched its savings account balance of 4.15%. When that announcement was made, current data from Bankrate showed savings accounts APY rate of 3.5% to 4.75%. As of May 17, the APY range is 4% to 4.85%, so it’s safe to assume that Apple’s entry into the market perhaps inspired neobanks and others financial organizations to close the gap.
Step always had a goal to offer the highest percentage among competitors in order to attract and grow with customers, so Apple’s move didn’t inspiration it to launch the high savings rate, MacDonald said.
“The hard thing with interest rates is that they keep changing,” MacDonald said. “In the last year and a half, rates have been going up. Each time they go up, the [Federal Reserve] Fed Fund Rates go up, and for any institution getting paid, the interest is going up, too. If they continue to rise, the 5% could go even higher. Based on today’s rates, it’s important to give customers back essentially what Fed Fund Rates are at.”
Step is working with its long-time bank partner Evolve Bank & Trust on the savings accounts. Meanwhile, the company, which has raised over $500 million in venture-backed funding — most recently last October — has over 4 million account holders.