Yotta Savings: A Review
A few months ago, Yotta Savings broke into mainstream personal finance communities with influencers Graham Stephan and Ask Sebby announcing themselves as angel investors. It has since grown to be a hot topic among personal finance gurus. Naturally, I had to find out for myself if Yotta Savings is worth it?
What is Yotta Savings?
Backed by well-renowned startup investor Y Combinator, Yotta Savings is a banking platform designed to make saving money fun. Yotta Savings was founded on the premise that 40% of Americans do not have enough money to cover a $400 emergency. Yet, the average American household spends $640 on the lottery each year. See a problem here? I do.
Yotta Savings was created to bridge this gap between saving and the lottery through its unique business model. For every $25 deposited in Yotta Savings, you are awarded one recurring ticket into a weekly lottery drawing. This means if you deposit $100 on the platform, every week here thereafter you have 4 tickets in a weekly drawing — until you withdraw funds or add money for additional tickets.
For the lottery drawing, all users pick seven numbers for each ticket they have at the beginning of the week. Numbers are drawn every night at 9:00p ET, with the final number (the Yotta Ball — equivalent to a Power Ball) drawn Sunday. The more numbers you match on your ticket(s) the better the prize you get. Prizes range from $0.10 to $10 million. Unlike a regular lottery ticket, any money deposited for tickets stays there, regardless of if your ticket(s) win or not. All money deposited also accrues a 0.2% APY. Yotta Savings gives users the thrill of lottery tickets with the stability of saving.
So is Yotta Savings worth it?
In short, yes.
Yotta incentives good habits for those who struggle to save. No other bank offers a program where you have a chance to win millions simply by saving money. This is beneficial because generally, people are more likely to spend a few dollars on the chance at a “big break” than they are at the guaranteed, but small interest rates of traditional savings accounts. It’s the mindset of “oh it’s only a few dollars, it won’t make a difference” that leads to people pushing saving to the side for the lottery. If that’s your mindset I encourage you to research what $5 can do if invested. Nonetheless, the benefit of incentivizing saving is great for people who struggle with saving and worth it for the habit change, it creates.
But, for financially disciplined people like myself, that’s not a relevant incentive to switch savings accounts.
The second benefit of Yotta Savings is that it averages more interest than any other savings account out right now. Decreasing interest rates coming from the Federal Reserve has caused many banks to lower their interest rates, prompting me to switch to Yotta Savings and find out if their unique payout structure netted a better APY.
Prior to Yotta Savings, I kept money in a variety of high-yield savings accounts. Most notably Marcus by Goldman Sachs and Wealthfront. At the time of this writing, Wealthfront offers a 0.35% APY and Marcus by Goldman Sachs has a 0.50% APY. They are two of the highest yield savings accounts available right now. But, Yotta Savings averages an APY blows both of them out of the water. When you add together the average prize money and their 0.2% base APY the average total APY sits between 1.8% and 2%. While this is not guaranteed for everyone, every week, due to the nature of their prize-based payout. As an average, this is stronger than any other high-yield savings account.
For comparative purposes below shows how $1,000 would perform over 10 years if invested at Wealthfront (0.35% APY), Marcus (0.5% APY), and a conservative estimate of Yotta Savings at 1.8% APY.
Using a conservative estimate payouts over 10 years from Yotta would be more than triple that of traditional savings accounts. Even if you end up with the lower end of the average it can still be expected to outperform the next highest APY for any savings account.
In my time using Yotta Savings, I have seen returns from 0.95% all the way up to 4.5% in a month. My highest winning week was in December and netted me $10. Since using Yotta Savings I have never had a month that performed worse than one when I had my money in Marcus or Wealthfront.
But, while the high APY is great, this is still just a savings account. Thus, I have compared it exclusively to other savings accounts. I’m not claiming this minor increase in interest is going to make anyone a millionaire and it’s not an alternative to investing. But, it’s necessary to keep some money in savings for emergencies, and Yotta is maximizing the ROI on that money.
The cons of Yotta Savings
It’d be naive to only look at Yotta Savings for the positives it offers. In evaluating any financial institution it’s equally important to address the negatives that come with it.
One being the value of winning a large prize will decrease as more users join. As mentioned earlier prizes range from $0.10 to $10 million. A large prize can be classified as anything over $999. Large prize winnings will decrease because they are split between all winners in a given week. For example, if you match 5 numbers on a ticket you would win $1500. But, if another user also matches 5 numbers on a ticket, during the same week, then the prize money is split between both of you; meaning each person would take home $750. Therefore, as more users join, large prize winnings will increasingly be split between more and more people — decreasing the overall average interest rate.
Another potential pitfall of Yotta Savings is that it’s undetermined how long they can maintain their payout structure. Just like any other bank, they are susceptible to change their payout structure or APY at any time. Given their extraordinarily high payout relative to other savings accounts and a declining interest rate from the federal reserve; I think it will be hard to maintain such a high payout while staying profitable. But, that’s only my assumption based on speculation, and we can’t be sure of it. Nonetheless, in the event of significant change, other banks could become more appealing for a savings account.
While important to consider, both these impacts will likely not be factors until further down the road for Yotta Savings For right now, I believe Yotta Savings is the best high-yield savings account available. Plus, it’s entirely possible that before these cons ever become relevant that Yotta Savings changes its business model to address them.
FAQs about Yotta Savings Legitimacy.
A question everyone should ask before putting their money into any bank is; how do I know my money is safe? With a startup, this question is even more important to ask. Fortunately, like most traditional banks, Yotta Savings is FDIC insured up to $250,000. This means that no matter what happens to Yotta Savings as a company you are guaranteed to keep any funds you have in it up to $250,000.
A second concern that many people have had is; how do I know the prizes aren’t rigged? Yotta Savings does not draw the numbers. An objective third-party vendor draws the numbers using a start state-of-the-art random number generator, ensuring that there is no chance of the drawings being rigged.
Concluding Thoughts on Yotta Savings
A savings account isn’t designed to invest money long term, and neither is the lottery. An APY of 0.35% or 0.5% is not going to make a massive difference in the long haul, and if that were the comparison it wouldn’t warrant switching banks. The lottery just leads to financial regression and is just about the worst thing you can spend money on. But, the chance to win several thousand dollars while also collecting an average of 1.8% APY is worth it. Using Yotta Savings could literally be the difference of hundreds, thousands, and for some lucky individual(s) millions of dollars in interest.
Switching an emergency fund or just general reserve money to Yotta is absolutely something to consider. To reinforce this, I would not move money into Yotta to get more tickets and bank on winning their lottery. But, money you generally keep in savings accounts or spend on lottery tickets that collects minimal interest is worth putting into Yotta Savings. Even if there are months or years where it makes less in interest than a traditional savings account the opportunity cost of switching from another bank’s minuscule APY is worth it — especially right now.
That being said, I think only time will tell if this remains the case. It’s important to continually evaluate all banks for the best APY. Just as investing is an iterative process, so is saving. I always keep an eye out for what banks are offering as an APY to weigh options. But, until there are changes in the market, I believe Yotta Savings to be the best high-yield savings account on the market now.
