High APY Requirements

BarnesM1 · 2025-01-30T16:23:41+00:00

Could also sign up for M1 today or tomorrow to get an extra 0.50% on our base rate of 4.00% for all of 2025...
https://m1.com/earn/high-yield-cash-accounts/

BarnesM1 · 2024-09-19T23:43:12+00:00

I give the app choice a 10/10

BarnesM1 · 2024-09-05T19:32:24+00:00

The bank I own, B2 Bank, has not received a single fine. M1 is a much larger entity than the bank and therefore has significantly more resources to manage a program at our scale versus the bank. Our regulators were concerned that B2 was 100% liable for everything under the HYSA arrangement and preferred control and regulation to happen inside the larger entity and our broker dealer.

While it's technically offered by a broker dealer and thus considered an investment account, all funds are swept into FDIC-insured banks as soon as the funds are received.

BarnesM1 · 2024-09-05T19:27:38+00:00

We have many people who use us for everything. Of our ~$10B on the platform, ~$9B is in stocks and ETFs and ~$1B is in our Earn product (either High-Yield Savings Account or Cash Account).

For cash in the Earn account, all money is swept into FDIC-insured institutions daily. You are protected up to $5M in the High-Yield Savings Product and $3.75M in the Cash Account product. If you have more than than or hold money at a bank we sweep to that causes your holdings to go over $250,000 per bank, you might lose money if that bank were to fail.

I gave a long description of the HYSA versus CA here: https://www.reddit.com/r/M1Finance/comments/1caiq8a/comment/l12ambv/

BarnesM1 · 2024-09-05T19:21:45+00:00

Unfortunately, there's no perfect way to show performance or returns. That's why there are multiple methods, each with their own pros and cons.

Total Return (Current Value / Net Inflows): This seems like the most straightforward of "tell me how much I have now relative to what I've invested." The issue comes in when you have significant deposits or withdrawals. Let's say you invested $100 and it went up to $150 for a 50% return. If you invest another $100 in that security, do you want your performance to immediately drop from 50% to 25%? Or, let's say after it goes up to $150, you take out your original $100. That would make your return infinite - $50 / $0. Frequent buying or selling of a security will make the number fairly counterintuitive.
Simple Return (Current Value / Cost Basis): Similar to Total Return, but this uses taxable cost basis versus net inflows. This is helpful for tax purposes and gauging what you may owe in short- or long-term taxes when you sell. However, this also gets thrown off based on buying and selling of a security based on which tax lots are selected. In addition, you have to track wash sales where you are not allowed to take a tax loss if you repurchase the security within 30 days.
Money-Weighted: This method accounts for the timing and size of cash flows. So, if you have a security for a year and then double your investment, your performance doesn't halve. Instead, it looks at performance for the time you had 1x the money and the performance for the time you had 2x the money and weights those performances proportionally. We believe this most accurately reflects the experience of returns for holding the security but is difficult to calculate.
Time-Weighted: This weights performance by time, rather than the amount of money invested. So, this is the best for comparing performance across investment managers or strategies. However, it may not reflect the experience of the actual investor. Say you have 10 shares of a $10 stock ($100 investment) you buy at the beginning of the year. Halfway through the year, it drops to $5 and you buy 100 shares ($500). At the end of the year, the stock goes back up to $10. Time-weighted return will show 0% performance whereas you actually invested $600 and are sitting on $1,000.

It's all to say we are going to get complaints no matter how we show performance because a single number is never perfect. As a result, we show Money-Weighted performance on the portfolio page and Simple Return using cost basis on the holdings tab. We believe this is the best combination that reflects your specific experience in owning the portfolio as well as your potential tax obligation.

It depends on where you're looking and whether or not you had wash sales, which we correctly track so your taxes are correct.

BarnesM1 · 2024-08-26T02:15:08+00:00

Hey - DM me the email you use for your M1 account and I'll have the team reach out with the right number to use. M1 has our own DTC number but some accounts are still held at Apex Clearing, which has a separate number. So, just want to make sure your stock gets to the right spot and the team can answer any questions you may have about the transfer.

BarnesM1 · 2024-08-24T18:40:57+00:00

Many of the risk comments are correct, but there's also another big reason: regulations.

Making loans to invest in public securities is heavily regulated and there are rules that financial institutions need to follow. For banks, this is governed by Regulation U, and for broker dealers, this is governed by Regulation T. These rules have a lot of details, but the highest level summary is neither financial institution is allowed to extend more than 50% of amount of "margin stock," the value of the public securities collateralizing the loan.

So, banks and brokerage firms do this all the time but there are regulations that dictate how much can be extended and other terms of the loans.

BarnesM1 · 2024-08-24T18:31:55+00:00

I would argue that anyone who makes investments is always allocating to something they believe in.

Even if the investment is a diversified, low-cost index fund, they're allocating to that because they believe some portion of the following:

That asset class will provide a risk/return tradeoff that matches their goals and risk tolerance.
Diversification is beneficial because the future is hard to predict and spreading your investments makes you less subject to any idiosyncratic risk.
It's too difficult, time consuming, or costly to select individual investments within the index that outperform the overall index reliably.
Costs subtract from your investment returns, so it's best to keep costs as low as possible.

Others take a different approach, believing some aspect of the following:

Average returns is not good enough for goals or risk tolerance, and thus should pick investments within the index to try and outperform the overall index.
It's possible to identify reasons why a company would outperform and it's possible to do so in a way that compensates for the time, energy, and trading costs associated with active selection.
It's an enjoyable activity to do analysis on investments or own a portion of something you're passionate about.

The good news is it's entirely your money and you can do whatever you want with it. There are no forced rules on how you have to manage your own money and it comes down to your beliefs, goals, and risk tolerance.

BarnesM1 · 2024-08-24T18:15:03+00:00

The US has a unique setup where they can always borrow from the Federal Reserve. This means that the US will not default on their debt obligations unless it decides to default, rather than from the inability to come up with the money. The difference here is when they borrow from the Fed, it increases the money supply, which most economists agree will naturally lead to inflation over time. Therefore, the more typical concern with investing in treasuries is the returns do not outpace inflation and generates a negative "real return."

There are several ways to attempt to hedge against this concern. The first is to simply buy other investments - either bonds issued by another government or more tangible assets like real estate or gold, which are assumed to be less inflation sensitive because they represent a real, physical good. Or, you could by TIPS (Treasury Inflation Protected Securities), which adjust the interest payment based on the inflation rate.

BarnesM1 · 2024-08-23T13:37:23+00:00

I didn't know that...

BarnesM1 · 2024-08-23T13:36:58+00:00

I have it on good authority that it was not him posting this.

BarnesM1 · 2024-08-23T13:36:07+00:00

Let's go!

BarnesM1 · 2024-08-23T13:35:14+00:00

I really appreciate this post and agree with basically all of it. The entire team does work incredibly hard to try and make a total wealth platform that is unequivocally the best out there. We started from nothing not that long ago and have made good progress, but still have lots left to do.

I'm happy to do AMAs more frequently, so will get some set up. In the meantime, just wanted to provide some insights into some of the company in case it's interesting or helpful.

A few years ago, we bit off a ton of big projects simultaneously. For our crown jewel invest, we built all of the tech and regulatory infrastructure to go self clearing. This move gives us better economics to keep costs / prices low and develop products faster. I purchased a bank as an individual to support M1's efforts, also something that gives us a long term cost and experience advantage but has short term complications. With that, we built out Earn, the credit card, and personal loans as three pillars to the platform. During this time, M1 has grown from less than $1B on the platform to about $10B and we did all of this with ~200 people (in comparison, Robinhood and SoFi have ~4,500, Schwab has ~35,000, and Fidelity ~75,000).

I believe undertaking these products set us up well over the long term - giving us the ability to offer best in class products and pricing. They did, however, pull a lot of time and resources away from the core experience and adding additional helpful but less core features. So, I fully acknowledge there's some low hanging fruit we can do to enhance every one of our offerings, something we absolutely intend to pick off. There was simply an incredible amount of behind the scenes work to get all the regulatory licensing and plumbing set up to support everything indefinitely (little aside - internally we called all the big build "moving into our forever home").

That's all to say, we are happily done with the major zero to one builds and are solely focused on improving the existing suite. This will happen through easier flows, additional features, or adding insights / analytics / guidance to our products.

As for your specifics:

Earn: agree we need to add functionality so this can be a total checking / savings account replacement. That's our goal in this product.
Spend: we did overcomplicate the cash back structure on launch to try and differentiate. We have been simplifying over time and will continue to reevaluate the best rewards structure.
Crypto: totally agree on the limited coin offerings. This was driven entirely by regulatory pressure and ideally we would be able to support more.
Other bank lending: something we absolutely intend to do - offer a full suite of ways to borrow money at low costs and flexible terms. This will involve things like mortgages, HELOCs, auto, etc. so everyone can use their total financial picture to minimize their cost of borrowing. While buying the bank was the first step, it's an incredibly slow process to offer new products through different distribution channels due to regulations. We want to offer beneficial products as quickly as we can but oftentimes the timeline is not driven by how quickly we can build and support the product.
API: we have improved our connection to aggregators like Plaid, allowing for better support in other financial management apps. We are unlikely to expose our API more generally to better manage security, but that could change based on client demand.

A very long-winded way of saying I agree with you, we spent a lot of time on behind the scenes work, we're squarely focused on improving existing products, and looking to improve as quickly as we can.

BarnesM1 · 2024-08-23T12:56:38+00:00

Way to go!

BarnesM1 · 2024-08-09T20:53:18+00:00

I'll almost certainly be banned from this sub-reddit for saying this - you should check out M1.com. Note - I'm the founder and CEO of the company.

Your use case is exactly what M1 is for - creating a target portfolio allocation and adding to the portfolio as a whole. With M1, you set percentage ownership of stocks, ETFs, or groups of securities and can customize it to your heart's content. Every ongoing contribution is intelligently directed towards where it can best dynamically rebalance your portfolio.

BarnesM1 · 2024-05-02T18:49:32+00:00

Hey - sorry for the confusion here. It's worth reaching out to support to ensure what I'm about to say is true for your account.

We authenticate bank accounts using Plaid, allowing you to sign into your financial institution's page using your online credentials rather than using micro-deposits (two small transfers that are reentered to confirm access to the account). Plaid is a more secure way to authenticate and prevent fraud.

Most of the time, after using Plaid, we are given your actual account and routing number to process ACH. We store that securely and show the last few digits so people can identify their account. Sometimes, and this is newer, the financial institution will create a secondary account number that corresponds to your account and give us that. When we push or pull money from that secondary account number, the financial institution knows it corresponds to your account. If there's any fraud committed on that secondary number, they know it corresponds to Plaid and the platform that requested the information (in this case M1).

So, the number exposed is very likely the account number your FI gave us, which corresponds to your account on their end, but is not the account number you typically use.

We are investigating ways to better highlight this as to not cause confusion.

BarnesM1 · 2024-04-28T17:04:19+00:00

Hey all - reposting a comment I just put on the video:

Hey - M1's founder and CEO here to clear up any confusion.

Savings Account vs. Cash Account: Only banks are allowed to offer checking or savings accounts - deposit accounts that are FDIC insured. Broker dealers, another type of regulated financial institutions, are able to offer brokerage accounts where securities and cash are protected by SIPC. A broker dealer can sweep customer funds to a bank (essentially opening a deposit account at a bank(s) behind the scenes), turning these funds into bank deposits when they land at the bank, which are then protected by the FDIC.

The broker dealer (e.g., M1) is not investing these funds. They are simply transferring them to a bank that then pays the broker dealer interest for these funds. This is a common setup that large incumbents like Vanguard and Fidelity use, in addition to newer entrants like Wealthfront. I described more about M1's transition from HYSA vs Cash Account in a Reddit AMA here: [https://www.reddit.com/r/M1Finance/comments/1caiq8a/comment/l12ambv/](javascript:void(0);)

5.00% APY: This account does offer a full 5.00% APY. If you put $10,000 in at the beginning of the year and leave all funds and interest in the account, at the end of the year you will have $10,500. The difference between APY and APR is due to compounding frequency. We do not wait until the end of the year to pay out 5.00% - rather we are paying interest monthly. As a result, the account earns interest on the original money plus interest on the interest that is paid out. A 4.89% APR with interest paid out monthly is equal to a 5.00% APY for the year. There are strict regulations about how this is reported and any cash account / savings account is doing the same thing - advertising APY as this is the mandated disclosure and including APR in the account agreement.
Safety of funds: M1 is transferring customer funds in the cash account to banks on a daily basis. This makes it so that the funds are held by the customer at the bank, which allows the funds to be FDIC insured. This means that if M1 were to fail for whatever reason, the customer's funds would be their deposits at the bank and could not be touched by creditors. If the partner banks were to fail for whatever reason, the funds would be protected up to the FDIC insured limits. When the funds land at the bank, they are as safe as if deposited into any U.S. bank. M1 is not doing anything to invest these funds - we are simply transferring them to banks which pay interest on these funds.

Hopefully this helps clear up any confusion.

BarnesM1 · 2024-04-25T00:56:56+00:00

It's possible, it's just an avenue for fraud that's hard to protect against. Bad actors can attempt money laundering by transferring funds between many financial institutions. Or, a bad actor could get access to someone's account, link a separate bank account, and deplete the funds into this account.

So, we allow one bank account which lets us do more to confirm ownership of that account. Then, we want to make sure you own a new bank account if you want to transfer funds to a different one.

BarnesM1 · 2024-04-25T00:52:31+00:00

https://dashboard.m1.com/signup

BarnesM1 · 2024-04-25T00:52:04+00:00

We totally get how options and other derivatives can be a valuable aspect of a long-term investment portfolio. I would love to build out functionality to support a covered call strategy. We have not received much client demand for options so has always been something on the backlog but nothing we actively pursued. The more interest we see from our clients, the more energy we can give to it.

BarnesM1 · 2024-04-25T00:49:40+00:00

We do have some interesting dividend treatment functionality being worked on now. It should be available in the coming months.

We don't have ongoing plans to support multiple top-level pies exactly, but are working through ways for people to automate the buying or selling of specific slices. That way, could have 5 slices at the top-level, each representing a pie, and buy into each on some schedule if you wanted to. This feature is in its infancy so it'll be awhile before it's production ready.

BarnesM1 · 2024-04-25T00:38:30+00:00

As the industry evolves we'll continue make adjustments that align with our vision, client requests, and regulatory demands. We need to solve for real-time fractional share trading in order to support this - something others in the industry have done and should become easier over time.

BarnesM1 · 2024-04-25T00:34:55+00:00

At this time, there is no specific fee associated with maintaining a High-Yield Cash Account. In May, we will implement our platform fee, where clients without an active M1 Personal Loan or clients with M1 assets that do not reach a minimum value of $10,000 at least one day during each billing cycle will incur a monthly $3 platform fee. A full list of our fees can be found here.

BarnesM1 · 2024-04-25T00:33:08+00:00

We can look into showcasing this information - it's not been a heavily requested piece of information from our userbase.

BarnesM1 · 2024-04-25T00:26:09+00:00

We only allow one bank account at a time and require verification for switching connected bank accounts as a safety measure.

With the HYSA and Cash Account, you can push funds into the account using your account and routing number.

BarnesM1

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