: Apple Card savings account has an attractive 4.15% interest rate, but beware of these pitfalls before signing

The savings account, launched in partnership with Goldman Sachs
GS,
+1.79%,
currently offers an annual percentage yield of 4.15% — an attractive interest rate by industry standards — and has no fees and no minimum balance requirement. At the moment, it is only available to people who hold an Apple Card, the company’s credit card.

The Apple Card and savings account join the tech company’s other financial product, Apple Pay, which got off to a slow start but found its footing during the pandemic as consumers embraced contactless payments and as more businesses moved to accept the payment option. 

Variable interest rates for the Apple Card range from 15.74% to 26.74% based on creditworthiness, Apple said. That’s broadly in line with the average credit-card interest rate, which is now at 23.84%, the highest since LendingTree began tracking rates monthly in 2019.

Citing the attractive interest rate for its savings account and users’ ability to access the account easily using an iPhone, some banking-industry analysts have said that the Apple savings account could be bad news for traditional banks.

But will it be good news or bad news for consumers?

Apple wants to attract younger customers

The Apple Card savings accounts will likely appeal to a younger demographic — that is, people who already use their iPhones for payments and are familiar and comfortable with conducting their banking via their smartphone, said Jesse Whitsit, a financial adviser with Morgan Stanley.

The savings account could also be a good way to save toward short-term goals, like a three- to six-month emergency fund, a down payment on home or even a car, Whitsit added. 

While not everyone is comfortable with the idea of handing Apple their financial information, said Ira Rheingold, executive director of the National Association of Consumer Advocates, Generation Z and millennials might feel differently. “They grew up with this sort of tracking and data,” he said.

Whitsit said that Apple’s savings account is a good starting point for people interested in learning about high-yield savings accounts, noting that research suggests that young people need to learn more about financial products and about managing their budgets. “No one’s really had that conversation with the younger generations,” he said. 

Apple did not respond to MarketWatch’s request for comment.

Overspenders should think twice about signing

One downside is that the symbiotic relationship between the Apple Card and the savings account could lead people to take on more debt, experts said.

Linking a high-yield savings account with a credit card is a novel development in the credit-card world, said Ken Tumin, a senior industry analyst on deposit accounts, banking, savings and investing at the personal-finance platform LendingTree. None of the major credit-card competitors have this kind of integration between cards and deposits, he said. 

For Apple Card users who sign up for the savings account, cash rewards automatically go into the savings account and start earning interest. It is “very seamless” and could be helpful to savers, Tumin said, but users have to be careful about overspending, especially those users who sign up for the card specifically to get the savings rewards. 

“[They] just have to be careful not to overspend to earn cash-back rewards,” he said. He can see the attraction of the card, though: “It might definitely encourage people to use the Apple Card rather than one of their [other] credit cards.”

U.S. credit-card debt is close to $1 trillion

The bad news: Americans are piling up the credit-card debt. U.S. consumer credit-card debt has soared to nearly $1 trillion, the Federal Reserve Bank of New York said in February, and credit-card debt rose by $60 billion just during the three months ending in December.

The good news: The U.S. personal savings rate also reached $1 trillion in March, up from $915.8 billion in February. This is a turnaround from late last year, when the personal savings rate fell to its lowest level since the Great Recession and to the eighth-lowest quarterly rate on record (since 1947). The personal savings rate hit 3.3% in the third quarter.

With consumers both saving and racking up debt at a record rate, what does that mean for people who might be interested in the Apple Card savings account?

Those who regularly carry a credit-card balance might be better off looking for credit cards with lower interest rates instead of signing up for the Apple Card, Tumin said. And for those looking for savings opportunities, there are other high-yield savings options, some of which offer rates of up to 4.50%, that don’t require signing up for another credit card.

The Fed increased its benchmark rate again Wednesday. The 25-basis point increase is the central bank’s 10th straight rate hike since March 2022. Indeed, the Fed signaled May 3 that it could be done lifting rates for the time being. The Dow Jones Industrial Average
DJIA,
+1.65%,
Nasdaq Composite Index
COMP,
+2.25%
and S&P 500
SPX,
+1.85%
closed up Friday on the back of strong jobs figures, but one economist said the jobs data would “dampen market enthusiasm for bets on rate cuts coming soon.”

Banks and financial institutions want to attract as many customers as possible to their credit-card business, which is usually the most lucrative part of their business, industry experts said. They often do that by doling out rewards and promoting savings products, said Michael Hershfield, CEO and founder of Accrue Savings, a savings platform that plays off the idea of buy now, pay later.

While the Apple savings account is a rare example of greatly needed innovation in the savings space, Hershfield said he’s keeping a close eye on how the relationship between Apple Card and the savings account plays out. “It’s important to acknowledge, what is the role of savings?” he said. “Is it a feeder system for credit? Or is it valuable for the consumers?” 

Emily Bary and Quentin Fottrell contributed to this report.