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Passive Income via Fidelity Securities Lending: Expectation vs. Reality

I just experienced my own version of the “Expectation vs. Reality” meme when I looked at my monthly report from my Fidelity Investments securities lending activities, where I lend out my stock shares and get paid interest. I had been getting a lot of transaction notifications where all my shares of Paramount (PARA) were being lend out to somebody (most likely to short it).

Expectation. I previously wrote about earning some extra income via Fully Paid Lending Programs in general, including that from Fidelity. In December 2021, Fidelity was showing this as an example scenario:

As of March 2023, the example scenario on the official Fidelity page shows a significantly lower income rate:

Still, over $400 a month of extra income from a $100,000 balance? I have a six-figure taxable Fidelity account, so I figured I was leaving money on the table! Let’s go!

Reality. Out of all my stock holdings, the only one to garner any lending interest was Paramount. This mostly makes sense in retrospect, as I tend to buy larger, high-quality companies when they are temporarily out of fashion. You don’t really see a lot of people shorting Berkshire Hathaway. Paramount is more of a value/cheap P/E and/or dividend play. (Although, Berkshire does own 10% or so of Paramount…)

Here are my real-world stats on Paramount:

Shares on loan: 582

Market price: ~$23

Market value: ~$13,386

Annualized lending interest rate: 0.25%

Daily accrual: ~$0.10 a day.

Monthly pro-rated income: $2.79

Actual income: $1.91 (only borrowed for 19 days)

So… basically I was making 10 cents a day lending out my $13,000 of Paramount shares. At that rate, even if I had $100,000 worth of Paramount, I’d be making roughly 77 cents a day, or $23 a month. Nowhere near the $479 a month example. Ah well, at least I bought into PARA at $17.22 a share.

5.01% APY 12-Month CD, 5.00% APY 17-Month CD, 4.60% APY No-Penalty CD via SaveBetter

Updated rates. SaveBetter is a financial marketplace that allows you to access high-interest certificates of deposit and savings accounts from multiple different banks and credit unions without having to open up a new account at each one. Every participation institution is either FDIC-insured or NCUA-insured. The participating banks, product terms, and interest rates change regularly. Here are the top SaveBetter offers as of 3/2/2023:

Background on SaveBetter. SaveBetter is a fintech website that serves as a marketplace for partner banks and credit unions looking to promote their deposit products. They offer liquid savings account, No-Penalty CDs, and High-Yield traditional CDs. Funds are held in a custodial account at the bank or credit union that is providing your selected savings product(s). The banks are all FDIC-insured and the credit unions are all NCUA-insured. SaveBetter charges zero fees to consumers, and is paid by the partner banks. SaveBetter is a subsidiary of Raisin GmbH, a German financial company. (They have a European version of SaveBetter as well.)

The benefit for the consumer is that you can easily access promotional rates at a new bank or credit union without having to open yet another new account (and endure identify verification hurdles, join partner organizations, open share savings accounts, etc). You can just go through SaveBetter and be done in a few clicks. This makes is easier to chase higher savings accounts and CD rates. You must link an external bank account and fund electronically.

A drawback is that you do not get direct access to your SaveBetter sub-accounts via routing number and account number. You must go through the SaveBetter site to open accounts, make deposits, and make withdrawals. Here a simple illustration I made that helps me visualize this setup:

More details:

5. What is a custodial account and how does it work?
Custodial accounts are involved in how SaveBetter directs the money transfers from customers to the banks and credit unions holding their savings. When a customer makes a deposit through their SaveBetter account into a savings product offered by a given financial institution, the funds move from the customer’s external bank account (also referred to as the reference account) to an omnibus custodial account held by Lewis and Clark Bank (functioning in the role as a custodian bank) at the financial institution offering the savings product.

6. How does pass-through deposit insurance work?
Although SaveBetter customers’ deposits are pooled in omnibus accounts, there is no impact on the eligible deposit insurance coverage you receive from the financial institution holding your savings. This is because the government entities providing federal deposit insurance — the FDIC for banks and NCUA for credit unions — permit pass-through coverage. So your money that’s pooled in a custodial account still has the coverage it would have were it held in an individual account in your name.

I suspect this setup is a lower cost structure for the banks as well, which in turn allows higher interest rates.

Up to $125 Referral bonus. Many of their minimum deposits are below $1,000. But if you are new to SaveBetter and plan to deposit at least $5,000, you can open via a referral link and entering my personal referral code jonathanp31786. You must deposit $5,000 for 90 days to earn $25, and then additional $5 for every subsequent $5,000 deposit past that, up to a max of $125 bonus. Here’s the fine print:

Making $125 has never been so easy or rewarding. Simply enter in the code you received from your friend or family member when you sign up for an account with Savebetter. Once you fund your account and maintain an initial balance of $5,000 or more for 90 days, you will earn a minimum bonus of $25 and a maximum bonus of $125 depending on the account balance you maintained after 90 days. The bonus will be paid out within 30 days of qualification. Funds will be deposited into your external bank account linked to Savebetter.

CIT Bank Platinum Savings Review: 4.40% APY ($5,000 Minimum Balance)

CIT Bank is another bank where I maintain an ongoing relationship because they tend to offer competitive rates. They are one of those banks that likes to run unique promotions and/or start new types of accounts, and they have just launched a new … [Read the rest]

SoFi Savings 4.00% APY w/ No Cap, $250 Direct Deposit Bonus, $25 Opening Bonus

Savings rate increased to 4.00% APY w/ any DD, $275 promo extended through 12/31/2023. SoFi is one of those apps that I tried out for the bonus, but have kept a relationship because it has maintained competitive rates and easy-to-use products. SoFi … [Read the rest]

Ally Bank 11-Month No Penalty CD Review: 4.75% APY (No Minimum)

Rates now up to 4.75% APY. It's always nice when you can get a higher rate without having to move your money to a whole new bank. Ally Bank raised the rate on their 11-month No Penalty CD to 4.75% APY for all balances with no minimum deposit. If … [Read the rest]

Save App Market Savings: Actual Performance Numbers (March 2023)

A few readers have asked for some performance updates on my Save app Market Savings investment, where your principal is FDIC-insured but the interest is linked to market returns via investments in index ETFs. If you put in $10,000 for example, … [Read the rest]

Stocks Are Not an Inflation Hedge (But Own Them Anyway)

Per Wikipedia, a financial "hedge" is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. Wouldn't be nice if for every Investment A, there was another Investment B that would always … [Read the rest]

How To Destroy Your Wealth

Charlie Munger and his principle of inversion tells us that sometimes the easiest way to achieve something is to flip it and consider the best ways to accomplish exactly what you are trying to avoid. Accordingly, check out this slide deck about … [Read the rest]

Ask the Readers: How to Get Cash from Balance Transfers in 2023? (Credit Card Arbitrage)

Recent events have reminded us that banks make money by taking in deposits at low interest rates and reinvesting those deposits at higher interest rates (either bonds or directly making loans themselves). When you see a credit union have a … [Read the rest]

Best 0% APR Balance Transfer Credit Cards – March 2023 (Updated)

Rising rates 📈 also means credit card APRs are going up. Shopping around for the best balance transfer offer can save you thousands of dollars in interest. Below is a freshly updated list of the best 0% APR balance transfer offers. I try … [Read the rest]

FDIC Insurance: Don’t Waste This Valuable Insurance

The big financial news over the weekend was the failure of both Silicon Valley Bank and Signature Bank. They failed, the FDIC took over and fulfilled its duties, and then the uninsured business owners convinced the Fed to backstop everything (aka … [Read the rest]

Top 10 Best Small Business Credit Card Bonus Offers – March 2023

Updated March 2023. Do you have small business income or work as an independent contractor? Freelance, Uber/Lyft, Amazon, eBay, Etsy, Airbnb? A small business credit card separates your personal and business expenses and can build up your … [Read the rest]