A guide to interest revenue and high-yield accounts
By offering bank accounts, you deliver more value to customers while creating robust revenue streams for your company. Learn how to get started.
Generate revenue from interest by making bank accounts available to your customers
As tech companies grow and scale, they need new ways to generate revenue and increase revenue per user.
A deposit product can help accomplish both:
- Enable customers to store deposits in bank accounts abailable thorugh your product
- Earn a share of the economics generated by those deposits
Technology companies like Apple, Shopify and Heard have shown how financial products can become a meaningful extension of the core software experience. The account is provided by a partner bank and can include cards, statements, payments, and an annual percentage yield (APY). For the technology company, customer balances can create a recurring source of revenue.
Apple’s new high-yield savings accounts brought in nearly $1 billion in deposits in the first four days.
For product and business leaders thinking about how to drive more revenue per user, this guide is for you. In it, we’ll explain how to earn revenue from interest on your customers’ deposits, covering topics like:
- How interest revenue works
- How much you could earn from your customers’ deposits
- How to start earning revenue from interest
How interest revenue works
Let’s explore how technology companies like Roofstock earn revenue from the interest on their customers’ deposits.
Banks often pay for the ability to hold and invest customer deposits; that payment is called interest. When a technology company partners with a bank to make bank accounts available to their customers, the company can take a fee from the interest earned on those deposits.
For example, when Stessa (a Roofstock company) offers bank accounts to its customers, those accounts earn interest. In this case, Roofstock passes the majority of that interest along to their customers in the form of a high annual percentage yield (APY).
How is interest calculated? It may surprise you to learn that there are many ways to do it; the formula in the next section is just one example. Which formula you use will depend on your business model and your bank partner.
How much you earn depends, first, on on the economics from the bank partner and then on how much you choose to pass through to customers. Some programs are designed primarily to deliver a competitive APY, while others allow the technology company to retain a larger share.
How much could you be earning?
To illustrate how much you could earn from interest on your customers’ deposits, let’s use an example.
Say you’re the VP of Product at Titan, an investment-management platform. By offering your customers bank accounts, you enable them to manage their cash and investment assets in one place.
Let’s assume that, in your first month, your customers hold $100 million of deposits in your program, and you’ve negotiated a 4% APY (annual percentage yield) with your bank partner. For the sake of simplicity, let’s also assume that the balance in the account remains constant throughout the month (i.e., there are no transactions), and that you receive monthly—rather than daily—interest payments.
Your agreement with your bank partner stipulates that you calculate interest using the following equation. At the end of your first month, you would receive $333,333.33.
What can you do with revenue from interest?
A higher customer APY can make the account more attractive, supporting acquisition and retention. Retaining more of the economics can create a larger direct revenue stream.
The right balance depends on the role the account plays in your product and business model.
In the above example, Titan has a few options when thinking about how to deploy their interest revenue:
- Capture the full share. At the end of each month, Titan is paid $333K. In this scenario, they put that money toward operational expenses and profits.
- Customers keep all of the interest. Titan’s customers receive $333K at the end of the month via cash deposits in their accounts; Titan does not exact any deposit fees.
- Charge customers a part of the interest they earn. For example, if Titan decided to charge customers a 50% deposit fee, their customers would effectively pay Titan half of the $333K (about $166.7K).
Titan could also vary their deposit fees by customer segment. As an example, they could offer a full 4% interest to customers who hold more than $100K in their accounts, while offering 3% to everyone else—and keeping the difference.
Apple’s recent launch of high-yield savings accounts is an example of option two (above). In this case, Apple passes the interest along to their customers at competitive rates—a compelling offer for new customers.
Additional revenue streams from financial products
Earning revenue on your customers’ deposits is perhaps the most obvious way to make money from offering financial products—but it’s hardly the only one. Based on our experience, these other revenue streams have the potential to be even more lucrative than revenue from interest.
- Interchange. When your customers make card purchases, you earn a fixed percentage of the net interchange from each transaction.
- Payment fees. It’s possible to charge your customers for certain payment types, especially those that offer enhanced speed (e.g., wire transfers, instant payouts, push-to-card).
- Lending and financing. Credit products can generate interest and fee revenue while helping customers managed working capital or make larger purchases.
- SaaS tiers. Some platforms charge their customers a fee to access premium features like embedded banking.
These products can also reinforce each other. Deposit accounts create balances, cards create spend, payment capabilities increase activity, and credit can support customers when cash flow is constrained. Built on one financial infrastructure platform, they can become a connected part of the core software experience rather than a collection of isolated features.
Start earning interest on your customers’ deposits
Making bank accounts available through your product requires more than an API connection. You need account and payment primitives, a reliable ledger, bank connectivity, compliance and fraud controls, reconciliation, reporting, customer support workflows, and an operating model that can scale.
Unit provides full-stack financial infrastructure for technology companies that want to store, move, spend, and lend money inside their products.
Companies build with bare-metal APIs for deposit accounts, wallets, cards, ACH, wires, checks, and credit. They run the product with integrated tooling for onboarding, transaction controls, reconciliation, statements, reporting, and support.
The ownership model is configurable. Many Unit customers build with complete control, while others begin with more managed support and take on greater control over time without moving accounts, balances, transactions, or customers to a different platform. White-label applications and embeddable components are available for teams that want to accelerate parts of the customer experience, while APIs support fully custom builds.
Curious whether customer deposits could become a meaningful revenue stream for your company? Talk with a Unit expert or start building in the sandbox.
The content in this article is provided for general informational and educational purposes only and should not be construed as legal, tax, accounting, or regulatory advice. Unit does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information provided, and the content may not reflect all considerations relevant to a particular business, product, or use case.
Frequently asked questions
How are interest rates determined?
The Federal Reserve sets the Effective Fed Funds Rate, which impacts short-term and variable interest rates. Banks adjust their individual rates accordingly.
The Fed uses interest rates as a way either to spur economic activity (lower rates) or to curb inflation (higher rates), depending on the needs of the moment.
What happens when the Fed lowers interest rates?
Inevitably, interest rates will change. The Fed raises or lowers interest rates to respond to the economic needs of the moment.
When interest rates come down, the revenue you earn from your customers’ deposits will also come down. That said, you may be able to make up for it by earning additional revenue from other embedded financial products.
For example, when interest rates fall, it becomes cheaper to borrow. At that point, lending and financing products may become more attractive to customers.
What else can I build after I've set up accounts?
Accounts can provide the foundation for a broader set of financial products designed around your customers’ needs. For example:
- Cards. Let customers spend directly from their balances while generating potential interchange revenue and giving them more reasons to keep money within your product.
- Faster payouts. Give customers the option to access eligible funds sooner and charge for the added speed or convenience.
- Payments and bill pay. Add ACH, wires, checks, real-time payments, or vendor-payment workflows so customers can move money without leaving your product.
- Lending and financing. Use the operational and transaction data available through your product to help inform credit decisions and design products around customers’ actual cash-flow needs.
When these products run on the same financial infrastructure and native ledger, accounts, balances, payments, cards, and credit can work as one connected system rather than separate features.
