I just learned about a cool new bank called HMBradley. It could be a great tool if you are currently building up an emergency fund, saving up a down payment for a house, OR, if you want to earn a decent interest rate on an existing pile of cash!

HMBradley offer a 3% interest rate on a regular checking account (increased to 3.5% if you carry/use their credit card also!). Pretty dang good in today’s climate where the average high yield savings account get’s you ~0.5%.

BUT, to qualify for the incentive, you gotta have at least a 20% savings rate.

First off, what I love most is that this is the first time I’ve seen a bank link their incentive program to a “savings rate,” which as you probably know, is one of the most important factors in calculating your time to financial independence!

Most of my friends (actually I’m guessing most people in the U.S.) still don’t know what a savings rate is! So it’s exciting to see financial institutions start using the same language us FIRE peeps use, and actually encouraging good personal finance practices. I hope other new fintech banks will start following suit, and continue spreading the 🔥🔥🔥🔥🔥🔥

**By the way… I’m not getting compensated to write this HM Bradley review, or to recommend any HMBradley services. I’m just sharing cool info that I come across. In fact, I learned about this bank from a random guy I met surfing who works there!**

First, I’ll explain how the bank works and how the savings rate is calculated. Then I’ll talk about some good use case scenarios to take advantage of the 3% interest on your cash.

HMBradley Review

I spent some time on the HMB website (and I even signed up for an account to start playing around). The savings account has no monthly fees, no account minimum, and no min/max number of transactions. They don’t have separate “savings” and “checking” accounts… It’s all the same stuff just bundled into 1 single account.

Here’s the fee schedule from their user agreement: 

Couple other things to note:

• All accounts are FDIC insured, so it’s a legit bank. There’s no risk storing money there (up to $250k)
• You get a debit card, and can do digital transfers, but there are no physical checkbooks or checks available.
• They have a mobile app, which seems easy to use and you can manage all your stuff from the app.
• I was easily able to link them to my Mint.com account for translation tracking. I assume it’s available for Personal Capital too!

Savings Tier and Interest Rate %

First, you can set up a direct deposit to have your work paycheck deposited there. (If you are self employed, or have other income sources, that seems OK too, as long as you flag these transactions as income deposits with customer service.) You gotta have at least 1 direct deposit per month.

The bank adds up all your monthly deposits, then minuses all the withdrawals. The leftover figure is used to determine your overall savings tier, based on the rate you are saving at. This analysis is done on a quarterly basis, and the interest rate you qualify for is applied to the following quarter.

Here are the interest rate tiers, which apply to the entire account balance:

(full details here on the bank website)

Saving 20% of income gets you earning 3% interest. Saving 15% gets you 2%, etc. etc… 

So for example: Someone depositing $5,000 per month, then withdrawing $4,000 per month, would qualify for Savings Tier 1 (3%APY) based on saving 20% of their income. Woohoo!

It’s important to understand though, that the bank only sees the money coming in/out of this specific account – not your overall financial profile. So they don’t take into account taxes, pre-tax paycheck withdrawals, or other earnings/spending outside of this bank account. The savings tier is solely determined on the transactions it processes. 

This is a smart move by HMBradley, because it means the account has to keep growing and growing in size. (But, it also gives room for a loophole, which I’ll explain more below in use case #3 below!)

Saving Rate vs. Investing Rate

In the FIRE world when we talk about our savings rate, we are really referring to our investment rate . Any money we “save” each month, we usually transfer right away to our investment accounts, putting the money to work for us immediately. Our savings are rarely kept all in cash if we already have a full emergency fund.

So in the case that someone invests all of their saved money, HMBradley would see an equal amount of incoming deposits as outgoing withdrawals. The system would assess this as 0% savings, because there’s no *new* money leftover in the account each month.

BUT, there are a couple of scenarios where people are building up their cash pile, and in these situations HMB could be a great account. Here are the use cases I can see being a good fit:

Use Case #1: Someone Building an Emergency Fund

Whether you’re starting a new emergency fund, or growing an existing one, HMB could be a great option instead of a regular savings account. As long as you’re planning to keep the savings in cash, you may as well try to earn as much interest as possible.

Earning 3% is rare for a checking account! Most of the big banks and money market accounts right now offer less than 1%.

As a comparison, here’s a list of “highest APY interest accounts” I found on Bankrate (as of Nov 2020). There are other outliers out there that pay a higher interest rate, but most cap the amount you can save.**

If you have your paycheck deposited into an account at HMBradley, and only withdraw 80% of the funds, you’ll qualify for earning 3% interest on the entire account balance. As you keep saving and saving, you can rest knowing your money is earning a great interest rate while saving up your emergency fund.

**Earlier this year I opened an account with Chime. These guys right now offer 1% interest on savings accounts with no hoops to jump through, and no annual fee. This was part of my churning bank accounts, and my wife and I both got $50 signup bonuses.**

Use Case #2: Someone Saving for a Down Payment on a House

One of the biggest mistakes I made when saving up for my rental property was just using a regular checking account to store my cash pile. I saved about $60k, and it took me 7 years to accumulate.

During this 7 year period, I made a total of $0 in bonus interest. In fact, my money was losing value due to inflation each year!

Instead, if I had the option to earn 3% interest on my savings (provided I qualified for the rate), my $60k in savings over the years could have earned an additional ~$5,000 in interest! Oh, how I’d love an extra 5k right now 🤦‍♂️.

Remember checking/savings accounts are federally insured, so there’s no risk you’ll lose your savings contributions. This is one of the reasons people prefer to save housing down payments in cash vs. investing in the stock market for a short term.

**The 3% interest is available on amounts up to $100,000 at this bank. So if you’re saving more than that for your house downpayment, you gotta work something else out :)**

Use Case #3: Earn 3% on Your Existing Cash (Using an Artificial Savings Rate)

As some of you know from my last net worth report, I have about $40k sitting in cash right now, which is our emergency fund. I’m earning next to 0% interest on this money (well, that’s not entirely true because I’m using it for churning bank accounts, but if the money did just sit there it would be earning 0%).

Unfortunately, my wife and I don’t have a 20% after tax savings rate currently. So transferring this $40k over to HMBradley wouldn’t do me much good because I wouldn’t qualify for even their lowest tier incentive.

But here’s where the loophole could help… Since HMBradly only looks at the incoming deposits and outgoing withdrawals from their accounts only, I could create my own savings rate. I would do this by using my regular bank for all my usual transactions just like I do today, and only deposit or withdraw money to the new HMBradley account that meets the savings rate qualifications.

For example: Let’s say I asked my work payroll to divide my paycheck up into 2 separate deposits, sending $100 every month to HMBradley, and the remainder to my regular bank as usual. Then, let’s say I just left the new account untouched, making no withdrawals…

The system would see $100 in deposits, $0 in withdrawals, and treat this as a 100% savings rate. I could leave this set up for years, and the account would just grow slowly staying at the highest 3% interest rate tier.

Since they give 3% interest *on your entire account balance*, as long as I have my $40k sitting there from the get go, I would earn a 3% return going forward. That’s over $1,200 in interest I’d be earning a year, vs. the $0 I get now.

Actually, this trick could be used with the other 2 use cases if you don’t qualify for the highest tier. Just treat the account like a 1-way street. Only direct deposit small amounts of money in and never take any out.

I realize the bank probably didn’t create the account to be used this way, but there’s nothing that prevents it. 🤷🏻‍♂️ And, if I took this route I wouldn’t feel too bad, knowing that HMBradley is probably lending my money out somewhere and making a higher return for themselves!

One last note: HMBank also offers a credit card – only for existing clients. Using the HMBradly credit card adds another 0.5% onto your checking account earnings. So potentially, you can earn 3.5% APY total! But, they use your total monthly deposits to determine your credit card approval (as well as your credit score obviously), so if you’re using the smaller deposits trick you might not get approved.

The HMBradly credit card has a $60 annual fee (waived for the first year) and you have to use it for at least $100 of spending each month to qualify for the higher rate.

Final Thoughts on HMBradley

I’m excited about the traditional banking industry getting shaken up by new fintech companies. It seems that new banks like HMBradley are offering better and better incentives for savers, as well as making things quicker and easier to use.

While this bank might not suit everyone’s situation, you can’t deny that earning 3% interest on a checking account is hard to beat! And the fact that they’re helping people better understand savings rates and encourage improvement … I’m a fan 😍.

What cool new banks and fintech offerings are you coming across?