Save App Review: 8.26% APY FDIC-Insured Savings Account? Here’s The Catch

Update: I have updated this review with additional information, including how returns are taxed as long-term capital gains rates. You can also see my real-world performance numbers here and here.

I’ve gotten a few e-mails about the Save app, which offers a Market Savings Account that “combines the security of FDIC-insured bank deposits with the upside potential of market returns”. I took a glance at the advertised yields (see below) and quickly filed it under “probably too good to be true”, but finally circled back and read through all the fine print and disclosures to figure out what is happening under the hood.

A short introductory story. Let’s say you have $1,000 and put it into a 1-year CD at an FDIC-insured bank that pays 5% APY. At the end of the year, you’d have $1,050 guaranteed. Now, imaging you went to Vegas and instead bet that $50 interest on red at the roulette table. Worst-case, you’d lose the $50 and still have $1,000. Best-case, you’d double the $50 and end up with $1,100. A 10% annual return! Now, you might charge a fee to others for this “service”. Nothing if they lose, but a little cut if they win. So $1,000 worst-case, and $1,096 if they win ($4 fee for the service). Venture capital funding, here I come!

This gives you a basic idea of what it going on here, except replace Vegas with some fancy derivatives to give you market exposure to a portfolio of stocks and bonds.

The long real-world version. All quotes are from Save’s official documents: press release, terms and conditions, SEC Form ADV, deposit agreement, and Form CRS.

This app is a combination of an FDIC-insured bank account, an SIPC-insured brokerage account, and an SEC-registered investment advisor. Your money is placed into an FDIC-insured account at Webster Bank that doesn’t earn any interest. Instead of paying you interest, they will buy a portfolio of securities that offer exposure to market products like stocks and bonds. These securities are held in a brokerage account with Apex Clearing, the same firm used by brokers like Robinhood, WeBull, etc. As your financial advisor, they will charge you a fee of 0.35% annually for this service. Ex. 0.35% of $1,000 is $3.50 a year. 0.35% of $10,000 is $35 a year.

Upon opening Market Savings and initiating a deposit to the Deposit Account, Save will, on behalf of you:

– deposit your funds in full into the Deposit Account provided by Webster, member FDIC and,
– purchase a strategy–linked security selected based on your risk tolerances within a Client Account

The Market Savings Product is comprised of a Deposit Account with Webster Bank, N.A. and a Client Account with Apex Clearing Corporation.

SAVE Advisers is an investment adviser registered with the SEC. SAVE Advisers provides its clients with combined banking products and wealth management services through a web-based algorithmically driven wrap-fee investment advisory program (the “SAVE Market Savings Wrap Program”).

The SAVE Market Savings Wrap Program is designed for investors with a cash savings investment profile. The investment objective of the SAVE Market Savings Wrap Program is to enhance our clients’ cash savings investment profile by providing attractive returns on capital using Save’s core investment philosophy while preserving their initial investment.

On the Market Savings Wrap Program, Clients will pay a wrap fee at a rate of 35 basis points (0.35%) per annum (one basis point is 1/100 of 1%) on either 1.) the total notional amount of each strategy–linked security or 2.) the total notional value of the Client Deposit Account (whichever is greater).

The Save app is basically a robo-advisor with a very conservative portfolio. This is a similar concept to the No Risk Portfolio with 100% Money Back Guarantee. Your market-linked investment may go up 10%, 100%, or whatever, but the worst thing that can happen is it goes to zero (and you still get back your initial investment). According to this WSJ article (paywall), the CEO says the chance of a zero return in any given year is about 15%. This suggests that they are using some sort of leverage. (They also say the returns will count as long-term capital gains, unlike ordinary bank interest.)

Save products are intended for conservative investors who are mostly concerned about the protection of their principal investments.

Here is what is held in my “Moderate” Portfolio (remember, this is not how all your money is invested, just a smaller portion that is separate from your FDIC-insured funds):

I can see this level of low risk being appealing, but that’s also the catch. You are basically running a very conservative portfolio where you have something roughly 95% in super-safe stuff, and 5% in high-return risky stuff. (Since it’s a small amount and somehow leveraged, I don’t really care what their model portfolio holds exactly. I just consider it very risky.) Taken as a whole, both your downside and upside is relatively limited. You are still taking some risk because you are giving up the guaranteed interest from a US Treasury bond or bank CD. At 4% APY for 1 year, you would only have to invest $9,615.38 today to end up with $10,000 in a year. A savvy DIY investor could probably construct something similar to invest the difference on their own, but this app makes it easy and pretty.

Every Save® account is connected with a FDIC-insured bank account. Your deposits are never at risk. We only invest the interest on your deposits, so no matter what happens with the ups and downs of the markets, your initial deposit is never at risk for investment loss.

This reminds me of the structured investments and “equity-linked returns with no downside” offered by many insurance companies. The insurance companies have much more onerous early withdrawal penalties where you can lose more than your initial principal, so this seems like a much lower cost option that is more aligned (they also get paid nothing if they return 0%), but this level of complexity is still not what I want for my primary portfolio. It feels more like wimpy gambling.

Where do they get those high advertised returns? Those are back-tested numbers:

Average annual returns are based on hypothetical back-tested performance by Save of the Save Moderate Portfolio from 2006 to present.

What happens if I try to withdraw my investment before the end of my term? There is a early withdrawal fee (a slightly complicated formula), but you’ll always at least get back your initial principal.

I understand that if I terminate my account prior to the completion of an investment term I may forgo all gains and receive back only my initial deposit.

Taxation as long-term capital gains. I was surprised to learn that the returns on Save app are taxed as long-term capital gains due to the fact that you are investing the interest and holding it for at least a full year. The long-term capital gains rate is usually lower than taxes on ordinary income, which is how traditional bank interest is treated. See this blog post for details.

The investments in Save portfolios are held for over a year so they are taxed as long-term capital gains.

$5,000 exposure referral bonus details. I opened an account because the current referral bonus tilts the odds in my favor. The minimum investment is $1,000 for the 1-year term, and $5,000 for the 3- and 5-year terms. However, if you open using a referral link (that’s mine, if you need more info please contact me directly), they will give you additional bonus exposure to the equivalent of $5,000 invested.

For each referral that signs up and deposits the required minimum of $1,000, Save will deposit $5,000 worth of portfolio investments in each party’s (both referrer and referee) Client Account held at Apex. All Referral Bonuses will be invested under a one (1) year maturity term. At the end of the term, the Referral Bonus Investment (i.e., the $5,000) will be returned to Save and each party (referrer and referee) will keep their respective gain from the invested Referral Bonus, minus Save’s fee for management. Save’s management fee is .35%, which is discussed in the Fees section.

I signed up using a referral link myself and deposited $1,000 to qualify for the bonus $5,000 in equivalent balance (total $6,000). This means I’ll get my $1,000 back after a year, plus the interest amount as if I held $6,000 total. This improves my range of potential outcomes, since 8% of $1,000 is $80 but 8% of $6,000 is $480. Look for this text in the link:

Thanks to Jonathan’s referral, once you open your Market Savings program, $5,000 in equivalent portfolio investments will be added to your account.

To me, this is like the various sports betting and poker bonuses out there that also tilt the odds in your favor. It will be interesting to see what the eventual return will be in a year.

Bottom line. The Save app offers you the chance to take a little extra risk with your cash by investing what would otherwise be the guaranteed interest of a CD into the variable return from market exposure to stocks and bonds. However, your original principal itself is kept in an FDIC-insured bank account and you are guaranteed to get it back. You basically speculate only with the interest, with it potentially being zero but potentially being 8% or above.