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Credit Karma founder and CEO Ken Lin.
- Credit Karma is launching a high-yield savings account offering 2.03% APY.
- This is the first financial product it has offered, but CEO Ken Lin said at an event that "we don't want to be a neobank."
- Savings account yields in general have been falling, tracking the Federal Reserve's cuts to interest rates.
- Credit Karma has built its brand around credit score transparency and personal finance content for its more than 100 million users.
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Credit Karma, known for helping people track credit scores and compare financial products, is now offering a more direct way for people to plug into savings accounts.
It unveiled Credit Karma Savings, its first ever financial product, on Thursday. It will offer a high-yield savings account with no fees or minimum balance requirement, and roll it out to 90 million US customers later this month.
The account is starting out with a 2.03% annual percentage yield - not the best on the market, but higher than the current national average savings rate of 0.09% according to the FDIC.
But Credit Karma says it does not want to become a lender itself, and has no aspirations to become a digital bank.
"We don't want to be a neobank, and we don't want to be a lender," said CEO Ken Lin at a press event on Thursday night. "You can't be unbiased and objective if you're providing the products you're trying to help your customers understand."
Like fintechs offering financial products, Credit Karma is working with a partner bank - MVB Bank in this case. MVB will hold the funds deposited into the savings account and offer FDIC insurance up to $5 million.
Using Credit Karma's existing network across over 800 banks, its savings rate will move competitively with the market, so customers won't have to monitor rates across banks to ensure they are getting a high rate.
The $4 billion startup made its name providing free credit scores. It also provides financial advice and content, including lists of best credit cards, personal and auto loan recommendations, and unclaimed money searches.
Credit Karma hopes that the product will appeal to their existing users, who may not understand the benefits of high-yield savings. The platform will include a savings simulator, where users can toggle recurring contribution amounts over time to see how their savings will grow.
Leaning on its consumer-focused brand, Credit Karma could be well positioned to build out its banking consumer base using the high-yield savings, before venturing into other offerings like retirement products.
With the Federal Reserve's recent rate cuts, the high-yield savings market has seen a decrease in APY across the board. Marcus by Goldman Sachs, which also offers a no minimum balance, no fee account, initially offered 2.25% APY, cut to 2.15% in July, then again cut to 2.00% in August.
Fintech Betterment is offering up to 2.11%, if you get on the waitlist for their upcoming checking account. Competitor Wealthfront offers 2.07% on its high-yield account.
Read more: Here's how the Fed sets interest rates and why it matters