afan wrote: ↑Mon Nov 25, 2024 4:49 pm
I do not see the advantages of one of these accounts as worth much of anything. Now that we all know that you don't REALLY have FDIC insurance except while the money is at rest at the bank, I would expect people to bail out of the product.
Even with a huge company like Vanguard or Fidelity, the coverage evaporates when the money is moved. These programs hunt around for banks offering good rates and swap customer funds to chase yields. So your money can be in motion and at risk at any time.
I assume these multi trillion dollar companies have good controls on where the money goes, since they move around billions everyday. But the whole appeal of the accounts over a money market fund is the
safety of the FDIC. If you don't care about that, then just use a MMF.
If you do care about that, then the banking as a service accounts are less safe than the MMFs from V or F.
Indeed.
First of all, I don't buy any argument that "reputability" is adequate protection, and that the victims are to blame for not using "reputable" firms. The predictive power of "reputability" is weak. Yes, Fidelity is a "reputable" multi-trillion dollar company that moves billions every day. I guess Wealthfront is a "reputable" $0.05 trillion dollar company that moves millions every day. But it is hard to argue that the Reserve Primary Money Market Fund wasn't the most reputable of the reputable when it collapsed in 2008. And I've presented evidence that Synapse was regarded as "reputable."
But, what is the attraction of these banklike services... Yotta and Beam at one end, Fidelity CMA at the other? (Would people use them if the website said "At Nottabanq, your money is FDIC-insured practically all the time?")
Well, first off, even within this forum, it is obvious that most people do not dig very deep behind web façades. And it is also obvious that
many people are charmed by the informal, new-millennium "style" of a place like "Redneck Bank: Where Bankin's Funner. They are
turned off by 20th-century styles redolent of suits, and poobah corporation names. J. Fulton Pennypacker IV & Associates, Purveyors of Fine Equity Assets. And they are very apt to be receptive to the idea of "reinventing" banking, and making banking more electronic. The idea that the services exist
only on your smartphone seems way more modern than some old bank that provides services on your smartphone
and also in a 1930s mini-Parthenon.
They actively
prefer "founded in 2019" to "founded in 1855."
In the case of Yotta, people seem to be missing the obvious attraction: the free lottery. Yotta's pitch was "we are an FDIC-insured bank or as near as makes no difference, with competitive rates, plus you can win big prizes." This was
not the kind of "too good to be true" pitch that should have been warning. The cost of that kind of lottery is minor, and nobody has suggested Yotta folded because it paid out too many jackpots. It's just... you know... some banks give you $59 worth of cookware when you open an account, some give you a $200 signing bonus, some give you free coffee out of big Keurig machines. Well, Yotta gave them small lottery tickets. If you don't personally find that appealing you might look down on those who do. But there was no reason to believe it wasn't legit just because of that.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
