Earn ~3% in an FDIC-insured savings account with Yotta Savings

[tavi]

[Update: this information is now outdated. The rate is now lower than 3% and steadily dropping week after week.]


[Note: I have no affiliation with Yotta, other than being a user as of yesterday.]

Yotta URL: https://www.withyotta.com

Yotta is a new Y Combinator-backed startup offering a FDIC-insured savings account with lottery-style winnings, made legal in 2015 with the American Savings Promotion Act. (More information available in their Hacker News launch post: https://news.ycombinator.com/item?id=23780062)

Instead of a guaranteed ~1% APY like other online savings accounts, they offer a guaranteed 0.2% APY + the potential to win "prizes" (e.g. $0.1, $10, $300, etc. -- up to $10 million*) per “ticket” where you get one “ticket” to a weekly "lottery" for every $25 you put in your account. Earnings are real cash, withdraw-able whenever from the savings account. There are no fees.

According to the founder, they’re aiming for accounts to earn approximately 1% APY on average, but right now they’re subsidizing prizes and doing approximately 3% (https://news.ycombinator.com/item?id=23786473). This is typical of VC-backed tech startups to subsidize the acquisition of users, and we can benefit from that.

*Look for “Prizes and Odds” in this document for more on the probabilities per prize: https://www.withyotta.com/official-rules

**3% APY is just a current average for the whole system, so I would imagine there's a good deal of variability from user to user.

[tavi]

Here's a helpful comment regarding probabilities and expected value (https://news.ycombinator.com/item?id=23787053):

It looks like the current base rate is a very competitive yield, and I'd expect the odds to be lowered soon, since their lottery gives the equivalent of about 3.6% in interest in addition to the 0.20 base interest. Another startup (Level Bank) using the same banking partner (Evolve Bank and Trust), launched with 2.1% APY in February, but soon had to lower it to 0.5%. This comment (https://news.ycombinator.com/user?id=adammoelis) by the CEO suggests they are subsidizing the lottery temporarily.
The variance should be relatively low for deposits in the 5 figures and above. See the results of my calculations below, based in part on the spreadsheet linked from https://news.ycombinator.com/item?id=23781247

If one holds $10K in the account, one should get 400 entries a week, and the expected number of times to hit each prize under $1 is between 1 and 9 times every week. I calculate the equivalent interest rate from the <$1 prizes alone is about 2.02%.

The $10 and $15 prizes should be hit about once every 2-3 months, and add about another 1.16% to the expected winnings.

Since the $300 and up prizes are split amongst all winners, it's hard to calculate the expected value, but assuming 10 million entries a week, the EV of the larger prizes is adds about 0.42% extra per year, with the vast majority coming from the expected value of the $5.8 million prize.

I believe that would be very unlikely for one to get below the equivalent of 2% interest over a few months if they held tens of thousands of dollars in an account, with the median outcome being around 3.4%. One could run a simulation to confirm this.