Review of my 4-10% APY Donut Account
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About a month ago, I wrote about a new type of account and financial concept that caught my attention.
It caught my attention because I saw I could earn 4-10% APY by leveraging this new account.
With many bank accounts offering 0.01-0.05%, and even my high-yield savings accounts only offering 0.50% APY, the nearly stock-market-like APY from this new account was clearly enticing.
As part of the previous newsletter, I promised I would provide a follow-up newsletter with a review in approximately a month. So, here we are!
As I do with nearly everything I enter for the first time, whether it’s a stock pick, crypto, or even a rental property, I start small.
Getting started using DeFi was no different.
After writing the last newsletter about DeFi, I deposited $500 into my Donut account to test the waters.
One of the cool features that I enjoy about the Donut app is that it shows your interest accruing immediately.
Now, I recognize this doesn’t change the amount actually being earned — in a bank account, even though you don’t see it, the money is still accruing. However, it’s interesting to be able to see it accrue, in real-time.
As you can see from the screenshot below, I’ve chosen to have 100% of my $500 allocation set to “Fixed” with a 4% APY. There is also currently an option for “Variable” offering 1.42% APY.
I don’t have all of the details on “Variable Pro” since it’s coming soon, but the 13% APY it touts is certainly intriguing! From what I’ve read, the Variable Pro Boost feature should be live in just two weeks, around the end of May, so I will be keeping an eye on that new feature and testing it out myself.
My guess is that this will come with increased risk, so it may not be the optimal strategy for all of the money I have in my Donut account, but I am going to keep an eye on it to learn more when it’s launched!
Whether I choose Fixed, Variable, or Variable Pro, is not the important piece — you should pick whichever is best for you, regardless of what I choose. However, what is important is that an app like Donut gives us choices. With a traditional bank, we don’t have much to choose from, and the choices we do have are all quite similar in terms of benefits and returns.
If you’ve followed the podcast, you have likely heard that I have a large percentage of my stock portfolio invested in fintech companies. One of the reasons for that is because I believe traditional banks have been very slow with adopting new technology and taking advantage of changes in the market. We see companies selling consumer products leveraging changes in the market, such as social media and referral programs, why haven’t financial institutions?
Companies like Donut aren’t just innovating by offering DeFi services, but they’re leveraging the new ways of today's business world.
I’m not an investor in Donut — they’re a privately held company — but as consumers, the lack of innovation from traditional banks has led to a subpar experience that is being exploited and made better by companies like Donut.
The above image is a perfect example. Under “Supersaver” you can see it says “no withdrawals for 30 days”. What does that remind you of?
A CD, or a certificate of deposit. That is a traditional financial product offered by banks that typically offers a slightly higher interest rate for locking up your money for a defined period of time.
Today, CD rates are marginally higher than traditional savings accounts. Yet, a DeFi company like Donut is able to offer upwards of 40% for 1 day by being creative and gamifying finance.
Lately, over the last few months, I’ve taken quite a liking to round-up apps. I’m currently using one to purchase bitcoin with every purchase I make on a credit card. So, when I saw this in the Donut app as an option for me to increase my DeFi savings, it was another big win in my books.
So far, it’s safe to say that Donut has won me over as a user.
As I do with all my financial strategies, I will scale into it slowly.
I do not plan to liquidate my entire life savings to deposit into the Donut app, but I will turn on the round-up feature, take advantage of some of the Boost features to earn extra APY, and continue to deposit savings into this DeFi account each month.
I received a lot of positive feedback from the previous newsletter discussing this — many of you mentioned you enjoyed hearing about new financial products, services, and platforms I’m using, so I’ll be sure to continue to provide updates on new things I’m testing out.
Could a bitcoin contango trade be next?
All the best,