The Fintech Varo Offers Unique Savings Account with Top Rates

Another financial technology (fintech) company is offering competitive rates on a savings account. It’s the fintech Varo, and its savings account must be used as a companion account to their checking account, which is called the Varo Bank Account. One thing unique about this savings account is that it can be used in one of two ways. First, it can be used as just a regular savings account in which all balances earn a competitive rate (1.21% APY as of 7/24/20) with no activity requirements. Second, it can be used in a reward checking mode in which meeting checking account activity requirements qualifies you for a much higher yield on your savings account balance (2.80% APY on up to $10k as of 7/24/20). If you decide to use it in this second mode, you must keep the savings account balance no higher than $10k. If your balance exceeds $10k, you will not earn the premium yield, even on just the first $10k of your balance.

Here’s a summary of the two activity requirements necessary to qualify for the premium rate. These must be met during the Statement Period.

• at least 5 qualifying purchases must be made with the Varo Visa Debit Card
• Must receive at least $1,000 in qualifying direct deposit in either the Varo Bank Account or Varo Savings Account.

It’s important to note that Varo wants a real direct deposit. Varo includes several examples of non-qualifying direct deposits in the Agreement, and one example is an ACH transfer that you initiate from your account at another financial institution.

Details of these two rate tiers and the limitations and requirements are described in the Varo Savings Account Agreement. Important information on the checking account is in the Varo Bank Account Agreement. One of my colleagues also did a review of Varo last year which offers a good general overview of both the checking and savings account.

My Take on the Varo Savings Account

Like the fintech Affirm that I reviewed two weeks ago, Varo’s targeted customer is primarily the "average Joes" who typically don’t have large savings. The $10k cap is definitely a feature that favors those with small balances. The fact that any balance above $10k disqualifies the entire balance from earning the premium rate makes this cap onerous. Last year, the cap was $50k. So it’s possible that we may see further reductions in the cap.

In addition to the $10k cap, a few other features make it less attractive for savers, especially those who might want to maintain large balances.

Checking Account Required to Open the Savings Account

Varo requires customers to first open the Varo Bank Account before they open the savings account. That’s even the case if you only want the standard rate and not the premium rate. Those happy with their current checking accounts may not like opening another checking account, especially one that offers no interest. However, the Varo Bank Account has some nice features. First, applying for it (and the savings account) won’t ding your credit score. According to Varo’s Help Section, they “don't check your credit history when you apply for a Varo Bank Account, so applying will not affect your credit score.” The checking account has no minimum balance requirements or monthly maintenance fees.

No Joint, POD, or Trust Accounts

One of the features that many savers won’t like is that they only allow individually-owned accounts. They don’t allow joint accounts, POD accounts or trust accounts (see Savings Agreement).

Transfer Limitations

Varo doesn’t make it easy to transfer large amounts. They have an ACH transfer system based on a third-party service called Plaid. Using Plaid to link to your other bank accounts requires that you provide Plaid your login credentials of your other accounts. According to this Varo article:

Varo never sees or stores your login credentials to other companies; consider linking a process where you “unlock a door” so we can see what’s in your other money “room” but we never have the key. Your credentials to your other accounts are always your own private information.

I was told that the dollar limits of the ACH transfers will vary based on several factors. Generally, the limits are small and the transfer delays are between 2 and 4 business days. If you do intend to transfer large amounts, you can initiate the ACH transfers using the ACH services of your other banks.

Lastly, Varo does not allow you to make wire transfers (see Varo’s Help Section). A wire transfer is a common way for savers to move large amounts to other banks very quickly.

Check Limitations

Depositing money via checks has limitations. You can’t mail in checks. You’ll have to use the mobile check deposit feature of the mobile app. A mobile check deposit can only be made to the Varo Bank Account. It can’t be made to the Varo Savings Account. As in the case for ACH transfers, the dollar limits for the mobile check deposit varies. According to the Help Section, “Limits are set based on how long your Varo Bank Account has been open and your prior account activity.”

For withdrawing money, the Varo Bank Account doesn’t offer paper checkbooks. As an alternative, you can send anyone a check via the Varo app. Varo will send the paper check without a fee.

Mobile App Only

Another downside is that Varo requires customers to open and manage accounts using the mobile app. I was told by customer service that some of the account opening could be done on their website. However, the mobile app is required to complete the signup process. This is the same issue that Affirm has, and I know several readers commented in my Affirm review that they didn’t like being limited to accessing their accounts from a mobile app.

Not a Bank, But That’s Changing

An additional concern that some savers may have with Varo is that it’s not a bank. Like most other fintechs that offer bank accounts, they have partnered with a bank (The Bancorp Bank) which holds your deposits and provides for FDIC insurance. I think most savers prefer to bank directly with a FDIC-insured bank rather than banking through a fintech middleman.

Varo is changing, and that should eliminate the above concern. Varo is on the verge of obtaining a bank charter. Once this occurs, it seems likely that Varo will be the one holding the bank account deposits instead depending on a partner bank. That may also have an impact on future interest rates. Varo will have full control over the interest rates they offer on the bank accounts.

Update 7/31/20: Varo has officially acquired a national bank charter.

Future Rates

As is stated in the Varo Savings Account Agreement:

current Interest Rates and Annual Percentage Yields may change at our discretion

I wouldn’t be surprised if we see rate cuts. Last October, the Varo Savings Account had a standard rate of 2.02% APY and a premium rate of 2.80% APY for up to $50k. As a comparison, one of the top online savings accounts at that time (at TAB Bank) had a 2.40% APY. The savings accounts at SFGI Direct and Vio Bank had a 2.27% APY, and the savings accounts at Synchrony, Marcus by Goldman Sachs and Capital One had a 1.90% APY. I would consider Varo’s current standard rate of 1.21% APY to be more competitive than the October standard rate.

As I mentioned in my Affirm savings account review, very few digital banks maintain savings account rates that remain above the well-established online savings account rates for the long run. New online banks often maintain top rates during all or part of the first year, but the rates eventually fall to levels that are near or below the rates offered by the well-established online banks. So unless the new savings account has a rate guarantee or some unique and useful feature, opening a new account is often not worthwhile.

Availability

Varo is offering accounts nationwide. According to the Varo Bank Account Agreement, the Varo Bank Account is:

available to citizens and permanent residents of the fifty (50) United States (“U.S.”) and the District of Columbia who are at least 18 years of age with a valid Social Security number. You must agree to accept electronic, rather than paper statements.

You must first open the Varo Bank Account before you can apply for the Varo Savings Account.

Applying for either account should not ding your credit score. According to the Varo Help Section:

we don't check your credit history when you apply for a Varo Bank Account, so applying will not affect your credit score

You’ll need a mobile device that can run Varo’s mobile app to use the account. You can begin the application on Varo’s website, but,

You need an iOS or Android device to use your account after applying

Only individual accounts can be opened with Varo. Joint accounts are not allowed. Also, no beneficiaries can be designated.

To get help with the application or with other account questions, Varo Customer Service can be reached by email ([email protected]) or by calling (1-800-827-6526). Varo call center is open Monday - Friday, 8 AM to 9 PM ET and Saturday - Sunday, 11 AM to 7 PM ET (excluding federal holidays). When I called Varo, I had a difficult time connecting to a human CSR. I was finally able to reach one by repeatedly pressing the “#” key.

Bank Overview

Varo is a San Francisco-based financial technology company that has partnered with The Bancorp Bank. The bank accounts are held by The Bancorp Bank, member FDIC, and the deposits are FDIC insured up to the applicable limits. This partnership can be confirmed at this The Bancorp press release page which announced the partnership in 2016. The Bancorp also partners with Chime.

The Bancorp Bank has an overall health grade of "A" at DepositAccounts.com, with a Texas Ratio of 6.87% (excellent) based on March 31, 2020 data. In the past year The Bancorp Bank has increased its total non-brokered deposits by $385.27 million, an excellent annual growth rate of 53.26%. Please refer to our financial overview of The Bancorp Bank (FDIC Certificate # 35444) for more details.

Varo Will Soon Be a National Bank

In February 2020, Varo announced in a press release that it had received approval from the FDIC for deposit insurance. The February press release described the remaining steps that were required and Varo’s future plans:

Varo Bank is on track to obtain its final national bank charter pending completion of organizational requirements and meeting the conditions of both the OCC’s and FDIC’s Federal Reserve membership. Upon full charter approval, Varo plans to expand to additional types of services including credit cards, loans, and additional savings products.

According to this July 22nd article from The Financial Brand, they are “just one final pre-opening exam away from becoming the first ever fintech granted a banking license.” Varo started the process to obtain a national bank charter about three years ago.

Update 7/31/20: Varo has officially acquired a national bank charter. According to this American Banker article,

Varo will have to buy its customers' accounts from The Bancorp Bank and enter them into its own core system, Temenos T24. This should be done by the end of the year, [Varo CEO Colin Walsh] said.

How the Varo Savings Account Compares

When compared to the Savings Accounts tracked by DepositAccounts.com that are available nationwide without minimum balance requirements, the Varo Savings Account APY currently ranks second.

The above rates are accurate as of 7/24/2020.

To review the best Savings and Money Market rates, both nationwide and state specific, please refer to our Savings Account rates table and Money Market Account rates table.