Your credit report is extremely personal information based on your borrowing history. It’s essential that you have a solid understanding of what your credit score is before you apply for any credit. The three-digit score (between 300 and 850) will determine whether your credit application is approved and what the interest rates will be.
Credit Karma has been an especially effective tool for monitoring your credit score. The company has also ventured into banking options that include the options for a high yield savings account.
These interest rates are so high that only a few offer options can beat them.
What Is Credit Karma?
Credit Karma is a San Francisco-based fintech (financial technology) services company that was founded in 2007 during the early stages of The Great Recession. Kenneth Lin, Ryan Graciano, and Nichole Mustard founded the company with the idea that people should be able to access their financial data for free. All three have remained with the company to this day, with Lin as the chief executive officer, Graciano as the chief technology officer, and Mustard as the chief revenue officer.
The Benefits of Credit Karma
The primary benefit of Credit Karma is that it provides users with a free credit score. In order to access Credit Karma’s services, you’ll need to give them basic personal information such as your name and the last four digits of your Social Security Number. Credit Karma will then use this information to create an average credit score that’s based on your various credit reports.
Features of Credit Karma
Free credit reports are only one of the services offered by Credit Karma. Another feature is a security monitoring service that alerts you whenever someone conducts a credit check on you. Credit Karma will also compile personalized financial offers for car loans, mortgages, and credit cards. The best part of this feature is that these offers won’t require a “hard inquiry” that can damage your credit score.
How Does a Credit Karma Savings Account Work?
Credit Karma is not a banking institution and doesn’t appear to be interested in becoming one. However, it has recently provided users with the ability to create a Credit Karma savings account.
The process is fairly simple and shouldn’t take more than a few minutes:
- The first step is to either log into your Credit Karma account or create a new one.
- Select the “Money” tab and then click the “Save” option.
- Next, you’ll need to confirm some personal information such as your name, address, and Social Security Number.
- Credit Karma will now send you a unique security code that you’ll need to enter into the prompt.
- Depending on the bank that you use, you should be able to connect your account by entering your banking information. You can also link your PayPal account instead.
- Your account is now officially open, and you're free to make your initial transfer.
The key thing to remember is that there are no physical branches or ATMs for Credit Karma. That means that the only way to deposit money into your account is by transferring funds from the pre-existing and external linked account.
You can either make a one-time transfer (as often as you like) or establish automatic transfers. Credit Karma allows you to create automatic transfers on a weekly, bi-weekly, or monthly basis.
What Are the Pros and Cons of a Credit Karma Savings Account?
Operating a Credit Karma savings account isn’t going to be the same as a traditional savings account. While Credit Karma can definitely offer unique perks with its saving option, it does come with a few downsides as well. Here are some of the pros and cons that come with creating a Credit Karma savings account:
Pros of a Credit Karma Savings Account
- High-interest rate. The initial interest rate of Credit Karma is much higher than most brick-and-mortar banks. Those institutions typically offer between 0.01% and 0.03% APY. Credit Karma rates can reach as high as 0.40% APY.
- Accessibility. Credit Karma is a web-based financial tech company. Since there are no physical limitations, their services are available in all 50 states. All it takes is an internet connection and an account.
- No monthly fees. It’s a common practice for banks to charge a monthly service fee to maintain your savings account. Some of them offer ways to waive these fees, but not all of them do. Credit Karma has no such fees.
- No minimum balance. Credit Karma doesn’t require you to uphold a minimum balance in your savings account. The majority of banks will charge a fee if your balance falls below a specific threshold.
- No opening deposit requirement. You won’t have to reach any certain amount when you make your initial offer. You can transfer one dollar if you want, and it will be eligible to accrue interest.
- FDIC coverage. Credit Karma ensures savings account balances of up to $5 million. The majority of bank accounts are only covered up to $250,000.
Cons of a Credit Karma Savings Account
- Members only. There is no charge to create a Credit Karma account. However, you will need to enter personal information and create an authorized account.
- Better interest rates are available. Credit Karma offers interest rates that are superior to most banks, but they are still relatively low for online options. There are a number of options that will provide a higher interest rate.
- No check or direct deposits. You can’t deposit a check or establish a direct deposit to your Credit Karma savings account. You’ll need to link to an external account and transfer funds from there instead.
- No signup bonus. There are currently no perks or incentives offered for creating a Credit Karma savings account.
- No joint accounts. There is no option for creating a joint account that can be shared with another person. Married couples would have to create separate savings accounts and link them to their own external bank accounts.
- Limited deposits. You can only move up to $1,000 at a time whenever you’re transferring from your linked bank account.
- No debit card. The money in your Credit Karma account can’t easily be reached. You’ll need to transfer it to your externally linked account first before you can access it.
- Can only link one external account. You can only link to one external bank account and change it a maximum of four times. If you have a checking account, savings account, and PayPal, then you can only link your Credit Karma account to one of them.
- No physical branches. The downside of having no physical branches is limited customer support. You’ll have to fill out a contact form on the website in order to receive help.
- Interest compounds monthly. Most interest rates are compounded daily, but Credit Karma compounds interest monthly. Depending on how you transfer money to your account, you’ll most likely be losing out on potential earnings by the end of the year.
- Difficult to withdraw. Deposits typically go through very quickly, but withdrawals can take some time. It can normally take more than the advertised three to five business days before your funds are moved into your linked bank account.
How Did Credit Bureaus Develop?
Credit bureaus and the earliest credit score algorithms can be traced all the way back to the late 1800s. But it wasn’t until the late 1970s that credit started to become widespread across America.
Despite initial issues and hesitancy in the 1980s, credit eventually caught on and became essential for loan applications during the 1990s. In modern times, credit scores are so important that they can even affect your employment status.
It was fairly challenging to stay informed about your credit score during the first 30 years or so. Fortunately, the internet has made it much easier to keep track of your progress.
Where Can You Get a Better Interest Rate? Try Yotta
The Credit Karma savings account offers an interest rate that is far beyond what you’ll get from a traditional bank. However, it’s not nearly as impressive whenever you compare it to online banking account options such as Yotta.
The key difference between these two is that Yotta pays out their interest in prizes. The way that it works is fairly simple and completely free. You get one ticket for every $25 that you have in your Yotta account.
You also have the opportunity to earn more tickets depending on your spending habits. You’ll earn a bonus ticket for every $10 that you spend with your Yotta Debit Card. It only takes a $5 purchase with your Yotta Credit Card to earn an extra ticket.
The tickets are sent out at the beginning of the week and contain six numbers and a Yotta Ball (the final number drawn). A new number will be drawn each night during the week at 9 PM EST. Depending on how many numbers match those on your tickets, you can win some serious prizes.
If you match all six numbers and miss the Yotta Ball, then you’ll win a brand new Tesla Model 3. If you match all six numbers and match the Yotta Ball, then you’ll win a cash prize of $10 million. Either prize will yield a much higher interest rate than what Credit Karma offers.
Start Saving Today
Credit Karma offers a large variety of financial services for free. The ability to monitor your credit for free is a feature that should be appreciated. However, when it comes to saving money, there are just too many downsides to their services. The interest rate is much higher than a traditional bank, but there are too many inconveniences and hassles to make it worthwhile.
You should consider using Yotta instead. A lot of the issues that plague the Credit Karma Savings Account feature aren’t applicable to Yotta. You’ll have access to more than 55,000 ATMs, can easily deposit and withdraw funds, and you’ll have the ability to use debit and credit cards. That’s not even mentioning the chance to win a $10 million jackpot.
Visit Yotta to create your account, transfer some funds, and start saving today. The sooner that you get started, the more chances you’ll have to win the big weekly drawing.
