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Launch HN: Financial Choice (YC S21) – Checking accounts with market returns
57 points by konne88 on Aug 9, 2021 | hide | past | favorite | 154 comments
Hi HN, we are Stefan and Konstantin, co-founders of Financial Choice (https://financialchoice.com). We offer a checking account alternative that lets users invest their balance (not FDIC insured), otherwise it works like a normal checking account.

Our background is in computer science (we’re ex-Googlers), but we also love modern portfolio theory, and long-term investment in low-cost, broadly diversified index funds (we’re big Bogleheads fans). Annoyed by our checking account’s low returns, we asked ourselves if there was a way to invest our checking account balances, but still keep the checking account features.

Financial Choice (FC) is our answer. When a user deposits money with FC, like a paycheck, FC automatically invests that money according to our user’s investment preference. When a user withdraws money, e.g. for rent/mortgage or at the ATM, they get money instantly, while FC automatically triggers a sale of their investments to cover the withdrawal. In many cases, investments sell in time to directly cover the withdrawal, while other times, the withdrawal is made on margin until the investments’ sale completes.

Users choose what they want to invest in based on what risk they are comfortable with. Many invest in stock index funds (e.g. S&P500 with 10.3% average annual return, -43.1% worst year [1]). Some users invest in bond index funds (e.g. 6.1% average annual return, -8.1% worst year [1]). Some choose socially responsible investments. Those with the lowest risk tolerance invest in US treasuries.

On a macroeconomic scale, we believe that our approach can solve major problems of the current banking system. Today, banks invest customers' deposits and keep the returns mostly for themselves (the national average interest rate is just 0.03% [2]). When there are losses, FDIC guarantees that customer deposits never lose money, but when the losses become significant enough (like they did in 2008 [3]), the taxpayer ends up paying with bailouts. With FC, users invest their money directly, so returns are transparent and there’s no need for bailouts.

Beyond giving people a choice, there’s also a couple other cool features that we’re excited about. Naturally there are funds flowing in and out of a checking account (paycheck, rent, bills, etc), and we can use these to automatically rebalance a portfolio. Similarly, we can optimize our users’ tax burden by being smart about which investments get sold and performing tax-loss harvesting.

Financial Choice is currently free to use and available in the US. We build on top of Fidelity that provides all checking and investing features. Building on top of an existing financial institution has been hugely helpful to get a full-featured product to our customers quickly (but it does mean that users have to share their credentials with us, similar to Plaid).

We’d love for you to try it out (sign up at https://financialchoice.com/signup), and give us feedback. We would also love to hear what you do with your checking account balance, and what you think the major problems with today’s banking system are (and how they can be fixed).

[1] https://investor.vanguard.com/investing/how-to-invest/model-...

[2] https://www.fdic.gov/regulations/resources/rates/historical/...

[3] https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...




It's dangerous to call this a checking account alternative. It is not a checking account, it is a taxable investment account.

You're going to get users who sign up thinking this is just like a bank account, but with better returns. Then the market will drop 10% when their rent is due tomorrow. Bank rates are so low because the money is always there and insured. Anything without these features should not be called a checking account.

You call yourself Bogle fans, but passive index investing and instant cash access are fundamentally opposed from a time perspective. Finally, this is a tax nightmare. People will think they have huge gains in their account but get hit with a capital gains tax when they go to withdraw.


You bring up some very good points, thank you. I agree we want to be careful to not call this a checking account, and I think we need to work on our wording here.

"passive index investing and instant cash access are fundamentally opposed": I agree, this is the case right now, but we want to change that, because there isn't any fundamental reason for this.

Yes, people will owe tax, but remember that only your gains are getting taxed. So if you get a tax bill, it's because you made money. That is still a net-positive. There are also a lot of things you can do to reduce (though not eliminate) the tax burdon, such as carefully selection what investments to sell, predicting money flow (e.g. not investing a paycheck if rent is due a day later), tax loss harvesting, etc.


> passive index investing and instant cash access are fundamentally opposed

They are opposed. Passive investing requires long waiting and holding, not lots of tx like a checking and cash access require.

Margin against the contents might be better, since you can keep the gains and not pay tax.

> e.g. not investing a paycheck if rent is due a day later

Yea, this is the problem! If you use this as a checking account, then you can't NOT invest it.


I think you are right if you assume that people generally keep their checking account balance at exactly what they need. If that's the case, then I agree, there isn't really a point to what we offer.

However, doing that is really hard, and requires you to micromanage your checking account. I personally (before using FC) had $10-20k in my checking account, because 1) I really want to make sure I don't miss a rent payment because I mess and 2) I don't want to micromanage. So, at least in my situation, some of the money is moving in and out and can't really be invested, but a decent chunk (probably >10k) just sits there. I imagine this is true for many people.


While I do wish the best of luck with your product, I feel like there's a difference in checking account needs for people with 10-20k of cash sitting around and people who live paycheck to paycheck. I think calling it anything close to a checkings account leads to "this isn't a checkings account and you're going to hurt people who think it is."


if i put in $50k, gained 10%, then payed rent with $2k. Is that $2k taxed as the profit? as someone not very knowledgable in the investment world, this seems pretty complicated, and also weird that i'd be taxed for every "faux checking" use if my portfolio is in the green


It depends on how much of your assets are invested in the market. And on how you're handling cost basis. And if you are carrying forward any previous losses. And how long you've held the asset. And... well, you get the idea.


well I'm not handling cost basis, Financial Choice is. and they're not sharing any of that AFAIK. which makes this confusing. Especially with the comparison here and on their home page, to a checking account.

Sounds like if the market is green I'm paying a hefty free for every single checking transaction


I think the tax filer max the ultimate decision on cost basis, not the financial institution.


If you put in $50K, and it gained 10% your account would now have $55K. If you withdraw $2K, you could be taxed on the 10% profit on that $2K, so $200. So if your tax rate is 25%, you'd pay $50 in taxes because of that 2K withdraw.


You are correct, but assuming the holding was < 1yr and STCG applied. If >1yr holding period, LTCG would apply. chances are it would only be a 15% tax rate in a LTCG applied tax. given current 2021 tax brackets.

Even this is incomplete, because we don't know the other tax situations, was there a tax loss carryover that would/could be applied, etc, etc, etc.

Taxes are complicated.


> Finally, this is a tax nightmare.

I can maybe get past the risk since I invest a lot anyways, and cap gains since interest bearing accounts are also taxed as ordinary income, but if every withdrawal causes a reportable sale, how is this not a IRS paperwork nightmare?


You can usually aggregate all your trades into a single line on your tax form.

"You can aggregate all short-term and all long-term covered transactions and report them as single-line entries directly on Schedule D. A covered transaction is one where your broker provided a 1099-B Form to the IRS that: 1) Show acquisition date and basis and 2) Don’t require any adjustments or codes"

https://www.hrblock.com/tax-center/income/investments/report...


Let me make sure I understand. My broker (in this case Financial Choice) will provide me with a 1099-B with a list of every time I bought or sold a security(this seems like it would be any time a used the checking account). I can then use the 1099 b to figure out what number goes into Schedule D.


As a counterpoint to the nay-sayers, I personally see value here and would opt for this were it offered to me by my bank, for example. This is not for people who live paycheck to paycheck, of course. However, for people who often have (a sometimes large) surplus in their checking account that they don't have the time/effort to move and invest elsewhere, this would be great.

I would love to be able to set a "surplus" threshold as part of this solution, say $5k (just an example - it should be set by the user), such that any amount above that in the account is invested, while the rest is kept in cash. That would solve the "emergency" funds issue for some people.

I think framing this is a checking account is what people are having trouble with. It really seems like an investment account with easy liquidity. If you add a section that is kept in cash, then it's checking + investment with automatic rebalancing.


To me it feels like a feature to existing trading/investing apps or platforms than a standalone product. Wouldn't it be quite easy for other established apps to do this? I mean, barrier seems to be pretty low for established players. Only way I see them creating barriers would be creating proprietary strategies.

Also, the fact that not many of them have this feature is kind of a red-flag. But then I am not the expert and I might be absolutely wrong.


> feels like a feature to existing trading/investing apps

I had the same thought at first. But at the end of the day the competitive edge a company like Financial Choice has might simply come down to marketing and UI/UX.

Wealthfront, Betterment, Robinhood, etc are very narrowly targeted at investors (e.g. if I send a link to Wealthfront to my cousin who wants to earn a return on a $5000 checking account she set up for her young child, or even her own checking account, she's very unlikely to convert)


We have debated this question a fair bit at Financial Choice. I agree, the barrier does seem low, but also keep in mind that this is often the case for new companies, and the barrier is often higher than it seems for existing companies. For really established players, it's often hard to move fast (anyone who has worked at a big company probably knows this, there is often so much red tape).

But I also think for others, this is quite a mental shift on how to look at checking and investing accounts. There are some investment companies like Wealthfront and Betterment who are starting to move into checking accounts, but it feels very much like a afterthought to a customer.

We are hoping to truly unite the two account types.


My suspicion is the main reason is that the costs of providing checking account functionality are high (banks subsidise this with penalty fees and marketing loans/mortgages and credit cards to their checking account customers as well as earning significantly higher returns oj their investment portfolio than they pay depositors). As much as in theory I'd love to hold money I might need to spend in the near future in fungible, low-risk government bonds, the middleman provides quite a lot of value in convenience.

Presumably you have put some thought into how you're going to manage these costs (beyond not providing branches) or what checking account functionality you are uninterested in providing.


The problem is incentives. Banks are required at least a 10% cash colateral (deposits) to issue new loans. If the funds are automatically invested into stocks/bonds/etfs, then the capital available for banks to issue new (profitable) loans decreases.


That's not a great premise for a company either. You are implying that this company is a risky investment.


It is a risk. It doesn't sound FDIC insured AND you can face market loss.


Yes, some (many?) brokers already offer similar services (i.e. debit card and checking). I think they typically only allow those to access cash on hand though and won't initiate any sales of any securities.


"I think framing this is a checking account is what people are having trouble with"

Yes exactly. Checking account is the safest thing you can do online especially with FDIC backing. It is misleading to say that it is like a checking account. It is not. People can lose money with this product and I think that needs to be clarified which is the opposite of a Checking Account.


> see value here and would opt for this were it offered to me by my bank

Fidelity has a Cash Management Account [1] that functions as a checking account as well as hold securities. (It also sweeps into FDIC-insured accounts overnight.) I find it useful for planning large expenses by e.g. buying a Treasury or other bond that matures around when that expense will be due, thereby earning a bit more yield while making the available cash actually represent unencumbered cash.

The UI isn't super modern, though. That may be worth giving up some of the securities features one will never use and the FDIC insurance.

[1] https://www.fidelity.com/cash-management/fidelity-cash-manag...


Lol! That is one heck of a value proposition:

We can't really help you if we end up losing all of your money... but our page looks way better than the alternative!


> our page looks way better than the alternative

They're built on Fidelity. Sweep will come. And there is value in being able to e.g. have an easy interface that says "I want this cash to be liquid around this date with about this confidence" and let the system work for you. Or designate cash as a rainy-day fund, or as buffer cash that can be invested in risky, marginable securities, et cetera.


> I think framing this is a checking account is what people are having trouble with. It really seems like an investment account with easy liquidity. If you add a section that is kept in cash, then it's checking + investment with automatic rebalancing.

This is absolutely the case. This isn't a checking account. This is liquidity management for those who are comfortably operating aggressively with their personal finances. With that said, definitely going to give it a spin side by side with my Fidelity Cash Management account.


Good point about the "checking account" phrasing. I agree we should be more careful here. In my mind, traditional checking accounts are characterized by two orthogonal features. 1) They offer money management features (debit cards, ATM, bill pay, check writing, scanning checks etc), and 2) they provide low volatility investing. Financial Choice offers 1) but gives you more choices with 2).


> I would love to be able to set a "surplus" threshold as part of this solution, say $5k (just an example - it should be set by the user), such that any amount above that in the account is invested

My old investment account offers to watch my checking account and pull any "excess" money into investments. if i drop below a threshold? Sell and move to checking.

(The firm is "betterment" if you want this). Would not recommend for/against. I no longer use this firm.


We've heard from a few users that they would like to keep some of the money in cash. I think that's a reasonable feature which we should add support for. In a sense, keeping a fixed amount of cash in your portfolio is really just investing in a mix of securities (similar to how people invest in bonds & stocks), which seems like a perfectly reasonable choice for people with a certain risk/reward profile.


Some people apply discounted cash flow analysis to current market prices, and conclude that the expected market return is -6% (or worse) under current conditions.

I'd prefer my checking account to have 0% returns to -6%.

It is simple for me to set up automatic deposits from my checking account to my brokerage account, and also include automated investment of those funds.

Perhaps I'm old fashioned, but I'm not really seeing the value prop. I have an investment account separate from my checking for a reason. Many reasons, actually.

and to close, referring to your interest in portfolio theory, there is an option value to holding cash. Not saying it should be a major portfolio allocation, but having a certain amount in cash makes sense from a financial engineering perspective.


In a short term time horizon, sure. But what if you use a service/strategy like OP over a decade, or more?

Since 2016; I have more or less keep all of my cash, minus a small emergency fund, invested into equities at all times.

I have nearly twice as much wealth as I would otherwise have, if I didn't do this and kept cash.

I'm not worried whatsoever on what analysts predict. They are consistently as wrong as they are right, and I've been hearing calls for overvaluations and market crashes for years and years ever since 2013.

You can't time the market.


I’m not sure what this has to do with the parent comment, who’s saying you can just automatically move money to an investment account now.


I can see how you came to wanting this but I think it could lead to dangers for many.

For most people (this is not financial advice for any one person) money in checking and savings should have a low rate of return and therefore low volatility because they need or may need that money to actually be there to pay bills or in times of crisis (emergency savings). Once you have these two pools of money, then you should invest in retirement and finally extra taxable investments. Most people should automate the money going into retirement and investments I agree but turning your entire checking account into a volatile/uninsured pool of money I think is the wrong direction.


I like your explanation of how to think about money, and I think it's the right strategy for some people. But there are also a lot of people (e.g. if you have a decent amount of extra taxable investments) you can do better your checking account in the market. Yes, this has risks (markets can drop), but this is okay for many people. One way to deal with this is to just keep more money in the "checking account". This is fine, now that the balance is getting market returns.


Im not sure I agree with this. If you have a lot of extra taxable money just put it in a taxable investment account and keep some lowing amount in checking to handle bills. Keeping it all in checking and making the entire thing investments seems like an odd approach, the low interest you are getting in like <10k in your checking is not a big deal.


I personally used to keep about a $20K balance in my checking account, and I was actually surprised by how much a difference it can make to invest that. If you have an investment with an expected annual return of 5%, that's a $1K / year that you are missing out on.

We've also seen users who needed to keep much larger amounts of money in their account for relatively long periods of time, because they were shopping around for a house or trying to buy a new car.


Note the point I made elsewhere: that you’re likely to draw on your “cash” emergency fund in times of market downturn. (E.g., you lose your job because of layoffs due to a market crash.)

Having that “emergency fund” be invested in the market means you will have “buy high/sell low” events.

For sure some people can afford this and just like to live dangerously, of course.


"Today, banks invest customers' deposits and keep the returns mostly for themselves (the national average interest rate is just 0.03% [2])."

Yes, but banks aren't just turning around and investing deposits in the S&P 500. Right now, the marginal reserve requirement in the US is 10%. So the bank is keeping 10% of your deposit as cash.

This is pretty similar from the common advice to "keep 3 months' living expenses as an emergency fund." And thinking about that advice, I have to question the value of Financial Choice:

* If I'm a user with a reasonably high net worth--say, 10x my 3-month living expenses--I should probably just put the 3-month expenses into an FDIC-insured bank account and put the other 90% of my assets into a low-cost mutual fund or ETF.

* If I'm a user without 10x my 3-month living expenses, I definitely shouldn't be investing my emergency fund in speculative assets like equities!

So, like, who is this for? :)

Edit: Reading some of the other comments here, I get the impression there are some posters here in my first category who would like their 3-month living expenses to also be invested in equities. And yeah, if you are relatively high-net-worth-relative-to-expenses, you can risk it--someone in the "10x" category can suffer a 40% market downturn and still have a meaningful emergency fund.

On the flip side, consider that market downturns and the need to tap the emergency fund are not statistically independent; the emergency fund exists, in part, to avoid forcing you to reduce your market position to cover expenses when you lose your job in a downturn!


Personally, I'm the former kind of person. I have enough to not suffer from a 40% downturn, and I'd rather have my emergency fund invested in the market.

But I agree, not everyone is like this. Note though that you don't have to invest in the S&P500, there are many lower-risk (and lower-return) investments to choose from. For instance, bonds historically have seen 6% average return, with their worst year seeing a drop of 8.1% (source: https://investor.vanguard.com/investing/how-to-invest/model-...).


I actually think this is a really intriguing idea once you push yourself past the knee jerk reaction of "wait you want me to put my whole checking balance in mutual funds?!"

As you know if you read enough about banking, and as the intro points out, banks already invest your balance in risky stuff. Namely they lend it out to small businesses, homeowners, and others at substantial risk for default. There are mitigations like collateral and sometimes securitization, but the risk is real and there and has blown up countless times in the past.

Yes, the stock market can "blow up" too. But at least you're capturing the upside of the risk with this model. Even interest bearing checking accounts share an infinitesimally small fraction of the return the bank can make on your money.

I'm not saying this is for everyone. When I was younger I would routinely deplete my balance and I do not think this is a good setup for people in that position. But at a more advanced age people tend to start carrying significant balances in their checking as a matter of course, and I actually think there is some strong if slightly counterintuitive logic here in this idea.


It doesn’t matter what my bank invests the money in; my money is insured by the FDIC, which isn’t the case here.


They’re both tradeoffs. In my FDIC checking account, I know for certain I will lose the rate of inflation every year on my carried balance (~4 percent historically) but I won’t lose due to the bank’s investment (if I’m under the FDIC balance limit).

In the other account, based on the same history, I’ll stay well ahead of inflation most years, but lose far more in some.


This is a huge departure from the point you made above, where you claimed “the risk is real” for money in FDIC-insured checking accounts due to risky bets by banks with my money.

“There are trade offs for the user” isn’t really in dispute. The major concern being raised throughout the comments here is that advertising FC as a “checking account” is deceptive: it encourages people to think of it like a checking account, despite having a very different set of trade offs.

In engineering, we would similarly talk about violating the principle of least surprise. If my library has a function for saving files that’s very fast but sometimes loses data, I don’t call it super_fast_write, I call it unsafe_write. I think the idea behind this project is super cool, but it’s not high_upside_checking, it’s high_flexibility_brokerage.


The risk is real in banking. I wasn't just referring to customers there, but to the whole system, since the criticism of this idea has been quite broad. But there is some real risk for customers. There are caps on FDIC coverage and there can still be significant disruption even if you are insured and will be made whole.


I think there are two reason why you should care how your bank invests money. 1) For society, because the government has to bailout your bank if they take risky bets. 2) As a customers, because you don't have any choice about how much risk/returns you get (which might be fine, if low risk/low reward is what you are after).


Low risk / low reward is the entire premise of checking accounts.

If this product was billed as “a brokerage with better tools for depositing/withdrawaling money”, the comments here would be radically different.


As a consumer with insured deposits I want my bank to make the highest risk/reward bets they can get away with by law. Let them make their money that way so they don’t need to go after me for nickle and dime fees.

My deposits are always under the FDIC limit per account so outside the inconvenience, there’s no true risk of loss.


That's a good point, but just covers the case where your bank fails. In the event of currency depreciation, your (e.g.) dollar-denominated account can lose a lot of value. Of course this may be accompanied by a crash in the same stocks they're proposing you invest in.


The risk level of my checking account becoming less valuable due to currency inflation/depreciation is minuscule compared to the risk of putting that money into the stock market.

The comment I replied to above suggested that checking accounts hold risk due to the bank making risky investments, which is fundamentally wrong for everybody operating with in the FDIC coverage limits (which is the overwhelming majority of Americans).


Your first sentence is wrong for many scenarios and is meaningless without a time interval. Over a period of 10 years the risk historically is absolutely higher from inflation than a total market mutual fund.

If people were good at sweeping excess balances into their investments I think this idea would be less appealing. But for a variety of reasons, many perfectly rational, people like having a nice cushion in there. It feels safe. Long term, it isn’t. These guys should lean into that in their marketing.


My checking account (and the checking account of the majority of Americans) isn’t measured in intervals anywhere close to 10 years.

The reason perfectly rational people like having a cushion in their checking account is that rent payments don’t care about 10 year historic trends; they’re just due when they’re due.

I’m sure there’s a decent collection of people here with enough disposal income that the idea of just having all their capital invested sounds lovely. But we’re inside a bubble here.


The idea is intriguing, but I think the gist of it lies in your point about this "not being for everyone." This essentially makes a super common financial decision... "for everyone," in the sense that if you weren't sophisticated enough to set up a proper investment vehicle, or properly allocate all the money in your checking account, you don't need to worry about that anymore. However, I think the set of those folks and the set of folks you consider that this prob. "wouldn't be for" is probably pretty large. It's just an assumption, but I'd hazard a guess that most folks who don't set up more sophisticated investment vehicles are also folks who simply can't afford to, or who'd struggle with a checking account which suddenly could have less money than the day before. If you are not in that camp, I think you're very likely well versed enough to know you have a lot of options on what to do with your money should your checking account balance exceed your needs for a daily/monthly use.

Also, I think the point with the bailout is a bit disingenuous on their part. True, if your account is not FDIC insured, then the government wouldn't need to bail YOU out. However, if we experience a similar crisis like we did in 2008, they will bail EVERYONE ELSE out. You just happen to be the sucker who will have paid into it but not been covered. If the argument were for eliminating FDIC insurance altogether, I'd be super onboard.


> eliminating FDIC insurance altogether, I'd be super onboard.

Why


> As you know if you read enough about banking, and as the intro points out, banks already invest your balance in risky stuff.

Not really. They invest primarily in mortgages which they package up and sell to Fannie Mae.

More importantly checking and saving deposits are insured by the FDIC so the risk of loss for the end consumer is zero below $250K (per account!).

Investment accounts would have SPIC insurance against insolvency but the actual risk of market loss is borne entirely by the end consumer. If you’re riding your mortgage payment on whether you don’t lose in any given month, things could get ugly. Ditto for the tax consequences of churning to cover bills.


> As you know if you read enough about banking, and as the intro points out, banks already invest your balance in risky stuff.

When the bank screws up and loses 90% of my money, I'm guaranteed by the FDIC to get it all back (as long as it's under the insured amount).

When I screw up, I lose money.

Sure, that's the way investing works, but people generally separate "funds I can afford to invest/lose" from their day-to-day checking accounts.

These days, you can just electronically transfer your money to your broker and it's available "instantly". I am not really seeing an advantage.


I completely agree, what a nice summary :) I also agree that this is not for everyone, and honestly one thing that's on our mind is making sure we give the users the tools to know what kind of risk they should and should not take on. We are not there yet, but we're hoping to have some very cool modeling tools available that help with this.

But I'm also curious, what other steps could we take to make sure people use this in an appropriate way?


It seems you are reducing the friction in using a more sophisticated investment vehicle, which is awesome. But I can only imagine that there will be far more friction with "where did my money go?" since there is quite a bit of history/custom that you are fighting with in terms of the checking account. Somehow gracefully setting up a slider-like ability to determine what amount REALLY NEEDS TO BE IN MY ACCOUNT OR ELSE I CANT MAKE RENT and everything else would probably be important; your wonderful value-add could be in the background doing all the necessary operations to match that user preference.

As it stands now, I need to consciously pick a fund, make a transfer, check it, withdraw, etc... But ultimately all I care about is broad definitions of how aggressive my portfolio looks and what I have in what is essentially cash. If you'd just modify all of those transactions into a simple slider for me, the value prop. would be super clear, and I'd also sleep well at night not fretting suddenly having less money than I need.


The right approach here is to market it as a brokerage with a game changing UX for deposits / withdrawals / risk modeling, rather than a checking account with a shocking amount of risk.


> In many cases, investments sell in time to directly cover the withdrawal, while other times, the withdrawal is made on margin until the investments’ sale completes.

Very rich people have access to borrow against their investments so they don't have to sell (and trigger taxes).

I would never use FC as it is. BUT if you made a product where you never sell the underlying assets, and instead offer a 0% loan against them when i withdraw (and take a fee somewhere to cover), I would be very interested. Ideally, it might have protections so i can never get a margin call and be in debt during bad market times. Perhaps i can only borrow against the invested amount (or eg 75% of it), and any asset growth is profit, and not borrowed against.

The benefit to this is great. I can watch assets grow, and capture their growth and not deal with taxes, while still benefiting from liquidity. For people will large, regular income (eg. SDEs), you can usually rely on a continued income stream. I am fortunate that i usually invest a large % of my income (sde DINK yay), so being able to only "borrow" against a subset of it for faux-checking seems fine.


I completely understand your desire to avoid sales of your long term investments that may have huge capital gains. To deal with that, you can configure us to sell shares in a tax sensitive way, where we will sell shares with a low tax burden first, so if you have a greater inflow into your account than outflow (which would be the case for a SDE DINK), we will usually just sell recently bought shares that haven't accumulated any capital gains, and all the shares with a high tax burden will never be touched.


> we will usually just sell recently bought shares that haven't accumulated any capital gains

There may be an opportunity here for some sort of pattern recognition to keep cash equal to expected inflow/outflow.

Eg. "80% of the days, they make a $10 lunch purchase, and get paid weekly", so keep $40 a week in cash to avoid cash <-> asset conversions at all.


Get an IBKR credit card starting at 1.6%


I didn't know this existed! This is great. Does anyone know if other brokerages do this too?

(I rather hate the IBKR app and don't like using it)


Almost all the others have higher margin rates. M1 is like 2% or so. Fidelity, Schwab, etc are like 8% or so, and BOA/ML is like 5% or so. (rough numbers, I haven't checked in a while).

But yes, they basically all do this, though on their debit card products, not their Credit Card products, I assume the original commentor meant Debit Card and not credit card.


This is brilliant.

This is absolutely a painpoint for me and other individuals that prefer to hold as much of their assets as possible in the market. The amount held over in checking for day to day transactions feels like little more than "cash drag" once you have enough saved that you can weather a market downturn. Right now I do expense tracking and budgeting largely so I can figure out how much balance I should keep in my checking account, then transfer the rest to investing. Combining the accounts like you propose would save me substantial time and missed market returns.

A problem you may run into in targeting bogleheads is that they like to see that you're well established before committing their life savings. Putting a substantial amount of money in a non-FDIC insured financial institution without a track record could be a non-starter. Advertising on your landing page that you base your services on top of Fidelity might lower that perception of risk.


Thanks for the positive feedback :)


If you have $3000 rent due, you can keep $3000 in checking to pay that, but you should not put that money in the stock market, since it could be worth only $2700 at the due date. Therefore I think the statement "We offer a checking account alternative that lets users invest their balance (not FDIC insured), otherwise it works just like a normal checking account" invites trouble. People should use checking accounts primarily to pay bills, so risky investments do not belong in them.


If you are really aggressive, you only need to keep money in your checking account between your payday and the due dates of your rent, utility etc. Everything else can be invested instantly on your payday.

If that amount of money is significant to you and you think you are missing out, you should stay away from the stock market. You are basically on the verge of bankruptcy, especially if you live in a country without proper social security (e.g. the US).

I like the idea if you are saving for something you do not really need, e.g. your second yearly vacation or some vehicle.


Thanks for highlighting that the investments can lose significant money, and that this is something to watch out for! Completely agree here. I do think that there is subtly around risky investments not belonging in a checking account. I agree that if you are in a situation where you live paycheck to paycheck you would only want to invest in very low risk assets (say US treasuries). That said, if you have some money saved up, you can invest your checking account balance more aggressively and still stay liquid even in really bad downturns.


Nitpick, but "US treasuries" include long-term bonds, which can fall substantially in value if interest rates rise. So low-risk short-term assets are confined to things such as Treasury bills with duration less than 1 year.


Great point!


This seems pretty terrible IMO.

Hypothetically let’s say everyone was using this already. Then something like Covid or another “worldwide bad event” occurs.

So people spend their money, which in this case means they’re liquidating their investments. This further drives down the price and increases volatility - in other words the people who need the money most in the most desperate times will lose the most as they will need to spend the largest percentage of their holdings.

To add insult to injury if enough liquidated then you could be in the bank run territory since there’s no FDIC insurance you could lose everything.


I really like your take. Also Fidelity offers a Cash Management Account(https://www.fidelity.com/cash-management/fidelity-cash-manag...) that is insured up to 1.25 M. That's a lot of money(at least for me). I think for people that are not rich, and need a certain amount of money saved in their account for rent, utilities, etc... a market downturn will put them in a pretty horrible situation. Imagine you get paid 3000 at the end of the month by your employer, and the next day you have only 2100 left, how do you make up for the difference?


Putting the Checking account into a fund/security and then selling the fund/security for ATM withdrawals, or individual expenses etc will be a headache come tax time. How does your product simplify this?

From your description, it sounds like this is not FDIC insured?


Every year you will receive the necessary paperwork from us to file your taxes. While there will be many trades, you can usually combine them into just one line on your tax return that sums them all up.

That's correct, because your money is invested, this is not FDIC insured.


Congrats on the launch! Few questions:

1. Do you think there's an opportunity for you to obtain 3rd-party insurance on deposits, as a sort of middle ground between uninsured deposits and FDIC?

2. How/why did you choose to partner with Fidelity?

3. Have you launched on any other financially-focused websites? If so, how was your product received by those crowds?

4. Out of curiosity, what tech are y'all building with?

Best of luck!


Thank you!

1. It's a good question, I don't think we have really looked into this, so honestly I can say much. But worth of further investigation on our side!

2. It turns out that we need a number of features (investment account, checking account with debit card, etc, ability to spend money against your investments, and a few more), and there are not too many players left that we could build on top of. So it was process of elimination mostly.

3. We haven't, this is our first big public launch.

4. We are built on AWS using lambdas and DynamoDB. We are using Typescript as our main programming language, both in the front-end and backend, which is very convenient, especially since we are using a monorepo. Makes code-sharing very easy. Our frontend is built using React.


Can't you effectively buy varying levels of deposit insurance by purchasing puts on the underlying portfolio?

Pay X% to limit your maximum losses in a year to Y.

For example, right now you can buy yearlong puts on SPY at a strike price of $260 (58% of the current value) for 1% of the current price.


> We are using Typescript as our main programming language

How are you managing financial numbers safely in TS? Any library to ensure its "safe"?


I won't lie, this is not my favorite aspect, but the only way to do it is have numbers be represented as a string (e.g. "10.128") and use a library to manipulate them. The number type unfortunately just does not work.


Would you mind sharing details about this, and your experience?

I ask not to challenge you or critique, but i have a deep interest in fintech and love Typescript. The ability to use it for fintech would be great, i just assumed it'd be too clunky to be practical.


that seems ... really really risky


So this is an investment account ? If you are not FDIC insured, can you guarantee that I will not lose any money at any time ? If not, it is not really a checking account in my opinion. With my brokerage account, I can already sell securities whenever I want and take the cash out (with tax consequences). Aren't you essentially doing the buy/sell for me but everything else applies just like any investment/brokerage account ?


Yes, you are completely right, this is an investment account with the money management and instant cash access features of a checking account. It is not FDIC insured and you can lose money.

We are buying and selling the stock in such a manner that you get instant access to cash (e.g. at the ATM), which would be impossible or very tedious if you did this manually :-)


Shiller PER is at 38.5 [1], signaling overheating. Is it now a wise moment to do an all-in of your savings in an S&P index replica? It is dubious to me. I buy bogleheading in general, but some market timing thinking seems unavoidable to make the choice, specially if one is not young and comes from a zero investment prior.

[1] https://www.multpl.com/shiller-pe


One of the core points of Bogleheads is to never time the market, and I actually fully live by that. This is one reason why I like what we do at Financial Choice, it removes another way for me to try and time the market: Before FC I would manually move extra funds in to an investment account on a sporadic fashion, but this was definitely prone to market timing either explicitly, or implicitly. If when I tried not to time the market, you often think of moving the extra money when you hear news about markets, so this was definitely not uninfluenced by that. With FC I take myself out of the loop and remove a source of trying to time the market.


You don't have to time the market, but when everyone is jumping off a cliff, you can say to yourself, "No thanks, I'd rather not jump off a cliff."


Who is the target audience?

People who want to hold 0% of their assets in dollar?

I often debate with my friend on what percentage of ones assets one should hold in dollars. 0% seems a rather radical choice. I don't know anyone personally who does that.

I am not saying it isn't a rational choice. Only that I don't know anyone who does it.


With today's existing banking products, it is indeed basically impossible to keep 0% in cash, because you then couldn't pay your rent etc.

On the question of how much money you should keep in cash, I think it really depends on how much savings you have. Most experts recommend a rainy day/emergency fund worth 3-6 months of normal expenses. If you invest that rainy day/emergency funds in a Financial Choice account, it is important to choose an investment strategy with an appropriate risk/reward profile, and adjust the savings target to account for the additional risk from the investments. Betterment has a pretty good writeup on this idea https://www.betterment.com/resources/safety-net-funds-why-tr....


I do not see a market for this product:

* People for whom this product matters ( those who don't have much money and hence should welcome the earning upside no matter how small the interest is, should not use this product because it is an investment account masquerading as a DDA account and could lose value. Having living expenses in an unstable account is just a plain bad financial advice.

* People who have a pile of money want their cash to be cash and cash only. They already have exposure to the market via investment accounts with checks/debit cards against them provided by the likes of Schwab, Fidelity, BOA, Chase and their immediate liquidity needs are addressed via revolving credit lines.


You may find most people are actually short the dollar (< 0%) on a net basis. That is, most people hold significantly more dollar-denominated debt than they do assets.


I guess I don't quite understand the target audience? I put in my average checking amount and it quoted me at how I'm potentially missing out on $262 dollars/year, at which point, I think, yeah okay, but I have FDIC-insured deposits, so I don't feel too compelled to forgo that for the promise of maybe adding another $262 to my wealth. I'm just simply not keeping 10s of thousands of dollars in my checking account. To me, that's what a savings account and/or investment accounts are for.

So who are these people keeping so much money in their savings account that they want to invest it, but are not already being served by other offerings from traditional investment firms of high-yield savings accounts?


Great question. The motivation will differ from person to person, but I can give you the reason why I'm using it.

I live in a high cost of living area, so I used to keep ~20K in my checking account at all times to pay for rent etc. All the rest of my money I invested in a total market stock index fund. The checking account balance is just a small fraction of my overall balance, so the FDIC insurance really didn't help me.

Financial Choice has two benefits for me. 1) I now get to invest those ~20K which gives me a ~1-2K expected annual return without any hassle, and 2) I can just keep all my money in my Financial Choice account, so I don't need to bother moving money between a checking and brokerage account anymore.


Hey I like this idea, I think the tax management is a nice value add too.

I don’t know why nay-sayers are freaking out about this aside from calling it a checking account. Most HSAs (like Health Equity which I use) have a threshold cash balance (say $500), and then allow you to invest the rest, even in equities. No one seems to yell at them for being irresponsible because a medical emergency may coincide with a market downturn.

Maybe this is inappropriate for a Launch HN, but do you see a path to profitability for this that isn’t based on selling advertising / marketing data? Is there sufficient income or a sufficiently large addressable market here to make this work on just cash management / tax planning?


We haven't really considered the path of selling ads or marketing data. Our current thoughts around business model are closer to Wealthfront (which charges 0.25% of assets under management) or Acorns (which charges up to $5/month for advanced services).


> No one seems to yell at them for being irresponsible because a medical emergency may coincide with a market downturn.

It’s not just coincidence for a checking account, people often need access to cash during market downturns as unemployment generally increases.


Sure, I can see that line of argumentation, but you’re paying a constant opportunity cost for having cash around

In some sense this is a form of self-insurance rather than paying a “premium” in opportunity cost to the bank each month / year.

Also: I know recommending options to novice investors is considered heresy, but in my experience 1 year puts insuring 50 or even 70% of market value via strike price are often considerably less costly than a 6-8% assumed annual opportunity cost between SPX and some 0/1% saving’s account.

Something that’s automated like this could easily just buy puts with a 1 year window on deposit and paired sell them with equities on withdrawal.


I do not know what is more bonkers - the fact that this is being pitched as "checking accounts" or the fact that YC invested in it.


As a Googler, I have this pain point. I was envisioning a product that sweeps the leftover income at the end of the month after all credit card bills and rent are paid, into a brokerage account. It would also automatically invest that amount into my choice of ETFs, which Vanguard bizarrely doesn't seem to support today. This seems to achieve the same goal with a simpler implementation, and then as you improve your cash flow predictions, you could start keeping a cash buffer and delaying investments to avoid some cash<>asset conversions.

Worrying about capital gains taxes is a head-fake - you're only paying tax on your gains, which would have otherwise been minimal interest, which btw is taxed higher than gains. The risk here is just that the amount of margin interest I pay is dependent on how quickly you're able to sell, although hopefully this shouldn't be a massive issue for VTI et al.

Your messaging on the website seems clear to me, I wouldn't worry about anyone living paycheck-to-paycheck mistaking your technical looking homepage for a regular checking account.

One of your mentioned use cases doesn't sound right though - if I'm saving up towards a short-term spending goal like a car or house downpayment, I probably want a predictable balance and not exposure to sudden price shocks.


Thanks for the thorough writeup! I agree that our implementation seems to solve your use-case.

Let me provide you with a bit more context about the house buying use case. When buying houses you need to keep a chunk of money (around $60k) available to wire next day for a "good faith deposit" in case you're the winning bid, and it's quite a waste to keep that money in a checking or savings account (since the house buying process can take months).


Since Financial Choice only allows 50% accessible in Instant Access, in your home buying example I would need to have $120K in my account to make a $60K transfer (ignoring the possibility of a market downturn). Is a long term goal of Financial Choice for users to treat this less like a checking account where you hold cash for near term spending and more like a one-stop shop where all your assets are held?


This is an awesome idea! Signed up and playing around right now.

One quick piece of feedback around the setup process (specifically "pick an investment strategy"). It would be great to see what the 1y & 5y ROI looks like for each of the ETFs you've listed. I'm currently going from your page to google to search for each symbol individually to gauge the ROI. It's taking a while!

Edit: Did not realize I would need to open a Fidelity account to make this work :(


Thanks for playing with it, and the signup workflow feedback. Fidelity is unfortunately a requirement right, but are planning to transition to our own platform in the medium term.


This is a great, we need more of such financial instruments than traditional checking account. But I'm wondering,

[1] How do you handle capital gains tax, when the user withdraws the amount from their account?

[2] How is this different from marcus/ally and thousand others, that provide money market fund accounts and money there is insured by FDIC.


1) You will usually pay short term capital gains tax every time you spend money. Note however that your taxes will only be a fraction of your gains, not your total assets. E.g. if you have $1,000 gains in a year and pay 35% short-term capital gains tax, you will make $650 post tax. If you have $0 gains, you will also pay $0 in tax.

You can configure which of your shares we will sell first. If you set this to Tax-Sensitive, we will sell shares with a low tax burden first, so if you have a greater inflow into your account than outflow, all the shares with a high tax burden will never be touched and they will eventually be classified as long-term capital gains.

2) Money market funds only allow you to invest in low risk/low reward securities. We allow you to invest a much broader set of securities (including bonds, stock, ETFs, etc).


What about wash sales? That seems like a big threat to this model


We currently don't try to avoid wash sales, so they can happen indeed. That's not the end of the world though (wash sales are completely legal), it just means you can't do as much tax loss harvesting as you might like.

Long term, you could imagine that our automation could buy and sell securities that are slightly different, so that you would get the full tax loss harvesting benefits.


There's probably less than a hundred public securities that would have the liquidity and spreads needed to do this without wasting your money. If you're talking about making a sale with every debit card purchase, it's going to be impossible to avoid wash sales.


The government hasn't really provided a definition of "substantially identical" for purposes of wash sales. Buying the exact same company is an identical security. Going from and S&P 500 index at one brokerage to another is a bit different. S&P 500 to a total stock market fund is quite different.

If S&P 500 index funds and similarly broadly defined funds from each brokerage house are available and deemed "different enough", it could significantly increase the money moves available before encountering a "required" wash sale.

I'm not familiar with the behind the scenes aspects of it, but it feels like there may be a clever solution out there that could augment some of the liquidity concerns you mentioned if you could batch the transactions together.

E.g. Alice has $1,000, Bob has $1,000, and Charlie has $2,000. They all have a transaction on the same day. Alice and Bob were on $Illiquid_Fund_A, Charlie is in $Illiquid_Fund_B. Alice and Bob trade with Charlie and everyone goes about their day.


That sounds like a potential nightmare given that end of year is when a lot of spending happens. Add a large market downturn at the same time, and people could in theory end up shooting themselves in the foot financially.


Is this the modern equivalent of getting stock tips from shoe-shine boys?


Do cash debits and checks lead to automatic sales of securities or does it roll into an automatic margin loan?

If so, how do you decide what securities to liquidate?

If not, what’s the margin rates and is there a spread atop Fidelity’s rack rates?

I’m in the skeptical camp as well as none of this seems that’s useful vs the potential fee structure and risk profile. Anybody that wants this now can setup a checking account alongside their brokerage and manually sweep cash as needed. That also has the advantage of being in explicit control of what monies get moved.


All good questions.

Yes, cash debits and checks lead to an automatic sales of securities.

You can configure the liquidation, e.g. to the Tax Efficient strategy, which minimizes capital gains taxes by selling shares with the lowest returns first.

We sometimes can't sell quickly enough, e.g. when you withdraw money at the ATM on the weekend, and then you would be paying for a margin loan until we sell your securities (usually the next trading day). It's just Fidelity's normal margin rate, we don't add any spread on top of that.

Manually moving money around is possible but it has some drawbacks. 1) Even with the best manual management, you do need to keep some buffer of money for unexpected withdrawals, and that money earns you essentially zero returns. 2) Fine grained manual management is pretty tedious.


How is this better than what Charles Schwab already offers? With their Investor's Checking account there is no overdraft fee as long as it is covered by another account(can be a brokerage account.) If I overdraft I can the $$ can be pulled from cash in the brokerage account or margin. The checking account is FDIC insured if I do decided to carry a cash balance. The brokerage is SIPC insured(which I am hoping your offering will be)


Good question. Here's the difference. When you withdraw money from Charles Schwab and there's no cash in your account, it creates a margin debt. You then have to pay that margin debt back manually, and you pay interest until you do. With Financial Choice, we automatically sell your investments to cover your withdraws so you don't build up that margin debt.


> With Financial Choice, we automatically sell your investments to cover your withdraws so you don't build up that margin debt.

If I withdraw $10,000 with that Charles Schwab margin debt, and let's say I repay it 3 months later, how much interest will I have paid to Charles Schwab? (Napkin calculation, I'm not quite sure what the interest rates is on those margin debt.)

With your product, indeed no margin debt, but if those 10k are obtained from an investment were originally a 5k investment from many years ago, then, assuming 20% ltcg + niit, I suddenly owe around $1200 to the IRS, and some other $$$ to the state maybe.

In which situations do you see this being a better money move than the margin debt way?

2 additional questions :

- when selling do you minimize tax (i.e. attempt to sell the lot with the least amount of gain)

- do you attempt to "cover" taxes? (i.e. withdraw actually ~$12k, so that i roughly have $10k actual cash, and the rest to pay the IRS bills - assuming your users can indicate which marginal tax bracket they fall in after W2s)


I'm probably not your target customer but I see having to manually rebalance my portfolio as a feature not a bug.

I would be very interested if you could find a way to provide me with a short term(net 30 days) low cost(<2%) margin loan. I wouldn't even really mind giving up some price execution (i.e payment for order flow) so you can make money.


How does this differ from having a Fidelity debit card tied to an investment account?

https://www.fidelity.com/cash-management/faqs-atm-debit-card

"The Fidelity debit card is available on youth accounts and nonretirement brokerage and cash management accounts with individual, joint tenant, and trust registrations"


If you withdraw money using a Fidelity debit card (without Financial Choice), from a brokerage account without any cash in it, that withdraw will create a margin loan that you have to manually pay back and that you also have to pay interest on.

If you withdraw money using a Financial Choice debit card, that withdraw will automatically trigger a sale of your stock in the appropriate amount, so that you won't be building up margin loans.


Who wants to be using a debit card instead of a credit card if you have a choice?


You mentioned that you can optimize which investments get solds. Assuming my risk tolerance is fine with stock index funds, what happens if I want to withdraw, say 1/2 of my portfolio but the S/P 500 is down 20% (aka March 2020 withdrawal).

Would this go through and the customer loses 10% of their account value or will you guys stop such a withdrawal.


Let's use concrete numbers just to make it easier. Say you have $10K in your account. You would be withdrawing $5K which we would allow. If you did this withdraw while the markets were close, and the value of your portfolio is only $8K when the markets are open, you would have $3K left in your account.


Fantastic product.

Business accounts have much higher cash drag - much harder / complex market but if you had the full package would be amazing (cash drag can be around $500K easily).

For larger uses of money (house purchase etc) how does that work in this system.

Also, I'd tag it a brokerage account with excellent cash management features - that's the normal way to call this.


We're focusing on consumer first, as you mentioned it's a bit easier to get into, but I definitely agree with there being an opportunity for businesses as well.

Large purchases work pretty much the same way as small purchases (you get the money instantly, then we sell your investments to cover the withdraw), except that you may run against the $100,000/day limit on electronic funds transfers.

Completely agree on the phrasing, we can do a lot better there.


House purchases etc are usually wire out - I think clear disclosures there might work on limits.

Or do a wire option with strong 2FA with callback - no SMS for authentication with a 90 day account age requirement and 15 day fund hold or similar on new funds prior to wire.

We normally have a fair bit I can't be bothered to shuffle to and from Vanguard and they've limited some of their cash management offerings. I do like having prompt access to funds so the wire option is appealing (even for a $25 - $50 fee) for me or make sure you are well integrated into same day ACH and have clear posted cutoffs (+ expedite fee if needed) for folks who need to move larger amounts.

Don't underestimate chance to move very large balances if you can solve brokerage + efficient access to cash.

Finally, if you are willing to do portfolio / margin lending (maybe very low leverage) you can often address most cap gains issues by smoothing spending.

Obviously this is opt in.

So if I write the $20K check to some contractor, you check for tax loss harvesting opportunities, if you find some great, sell and fund. If you find none then you carry that $20K on the margin account until my next deposits come in at end of month.


Don't traditional bank already have brokerage accounts? I do personally use interactive brokers, but my bank is HSBC and I know I could have a dedicated brokerage account to buy stocks, ETFs, etc there. How is that different?


The key difference is that we allow you to invest all your money and still give you instant access to cash. With traditional banks/brokerage accounts, yes, you can invest your money, but if you invest it all, you can't go to the ATM and withdraw money. With Financial Choice, you can.


> The key difference is that we allow you to invest all your money and still give you instant access to cash. With traditional banks/brokerage accounts, yes, you can invest your money, but if you invest it all, you can't go to the ATM and withdraw money.

Yes, you can. Every single one of my investment accounts comes with a debit card that can access both uninvested cash and take a loan against the value of my securities, which I can either repay by selling the securities or by transferring cash.


I see. I don't live in the US, so I don't know how easy it would be to convince someone to have a startup as a bank there. In Europe, I'm pretty sure nobody would pick a new bank (especially a startup) just for avoiding monthly saving tranfers. That seems more like a nice feature a bank could have, rather than a new business idea.


Curious, what's required to startup in this space? I've had some ideas myself, and have looked at banking as a service platforms, but everything seems complicated.


It's definitely not trivial, there is a lot of jargon, and a lot of regulation. We don't have any silver bullets, but we found Y combinator (the startup program) to be hugely helpful to connect us with other startup folks who have gone through similar problems.


That is an interesting idea. Some related options that the target audience for this service may use are funds like ICSH or crypto interest accounts like BlockFi.


This is a brokerage account, not a checking account.

Deceptive post.


So is this essentially Fidelity's Cash Management Account with access to riskier investments?


So you built a financial product to convince people to forgo FDIC insurance on their primary checking account? What an evil premise for a company. That's despicable. I'm sure almost none of your customers will understand their inherent cost of repeatedly moving money in and out of a volatile asset, not to mention that this concept would ruin the economy if widely adopted, because the FDIC was invented for a reason. I hope the SEC destroys you.


You've broken the site guidelines with this comment. Would you please review https://news.ycombinator.com/newsguidelines.html and stick to the rules? They include:

"Please don't fulminate."

"When disagreeing, please reply to the argument instead of calling names. 'That is idiotic; 1 + 1 is 2, not 3' can be shortened to '1 + 1 is 2, not 3."

"Please respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize. Assume good faith."

I'm sure you can make your substantive points thoughtfully, so please do that instead.


I do agree that this should be positioned as a brokerage account with a debit/credit card for spending.


Interactive Brokers already offers this, so I'm wondering what the actual innovation is here.


Am I the only person who read this comment in Kevin O’Leary’s voice?


I think your criticism is a bit misguided. The FDIC insurance fund only covers a tiny fraction of bank deposits and if a single small bank had a run the fund would be insufficient to cover it's customer base. It also covers derivative losses before balance losses, so it's really more of a psychological tool then anything else.

Also banks are investing all of your money in highly illiquid risky assets (aka mortgages) so I don't see how this would ruin the economy or even meaningfully change the risk profile if adopted at a large scale.


> The FDIC insurance fund only covers a tiny fraction of bank deposits

Isn't it $250,000 per customer?

It wouldn't be enough to save the bank if there was a run (because of accounts with huge balances), but it'd be enough to save most of the customers that need saving.


It is a per-signator per-bank per-type per-POD


I wouldn’t say 250k per person per bank per account type is a tiny amount. Moving money from a bank account to the market is a significant increase in risk for all but the most wealthy.


I wish I had so much money that $250k was a tiny fraction of it.


I completely agree that our product could be used the wrong way, and we want to make sure we guide our customers to the investments that will have the best risk profile for them. In particular, we are currently seeking to become a registered investment adviser, so we can make suggestions based on our customers' individual situation (e.g. so we can recommend that people without significant savings invest in lower risk securities like US Treasuries and Bonds).


It's shocking to see the similarity to how you talk about this product compared to the founders of Robinhood. They've been very successful at tricking people into gambling away their money in the name of "investing." This is essentially the same thing at a smaller scale. This is a bad product for most people, who will silently lose money over time by moving money in and out of the stock market. Perhaps you're initial, wealthier customer base will be able to make use of such a service, but if you end up achieving any amount of scale, you will invariably end up wrecking someone financially. I hope you enjoy the moment when someone can't make rent because the stock market had an off week.


I completely agree that we don't want to end up being the next Robinhood. One interesting technical aspect there is that our customers don't manually trade securities, instead they provide us with a strategy that we then execute when we need to automatically buy/sell their investment. I think this will implicitly guide our users toward choosing a long term investment strategy (like mutual funds) instead of doing day trading.


I'd be very careful with that. If you suggest something to a customer that causes them to loose money you can be sued and potentially held liable. Becoming an RIA would likely force your product to become hyper conservative in it's approach which perhaps is good if you're billing yourself as a bank account alternative, but also perhaps not your intention.


The standard investment risk questionnaire, in combination with risk-appropriate choices, is a safe harbor for advisors.


Isn't the risk profile of a checking account "don't lose money"?


wow. what a comment. I think there's a place for this product. sure it's not for everyone, but modern investing apps are already erasing the lines between risk on and risk off money.

https://tolusnotes.com/the-true-cost-of-fdic-stability-broke...


Ponzi Scheme Longevity Rules:

Encourage “reinvestment” of income. The less income the schemer pays out, the longer the scheme will last.

Moderate the amount stolen each year. If he steals a smaller amount each year, the scheme will last longer and he will likely be able to steal more money overall.

Discourage redemptions. Paying out principal to investors at a high rate will crash the scheme quickly. Therefore institute a large penalty for early redemptions or promise an even higher Rate of Return if the principal is reinvested instead of withdrawn.

The Rate of Return promised should be higher than alternatives but not so high that paying out income will quickly bankrupt the scheme.

Recruit new money. New money is key to maintaining a scheme for an extended period




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