Main Street investors looking for a place to stash their cash besides big banks will soon have another option.
Free investing startup M1 Finance is launching a checking account and debit card in the coming months, called M1 Spend, it said in a letter to its customers on Monday. The new checking product will be fully integrated with the company's trading (M1 Invest) and line-of-credit offering (M1 Borrow).
Although the three offerings will be in two separate accounts — M1 Invest and M1 Borrow will operate out of a brokerage account, while M1 Spend will sit in a checking account — clients will be able to move money between the three segments, according to the letter written by M1's founder and CEO Brian Barnes.
"We imagined an account where you can easily receive and spend money, much like you do with current checking accounts. But unlike current checking accounts, your money is not confined to sit idle as 'cash,' earning next to nothing. Instead, excess money is automatically swept into investments to capture its full potential," Barnes wrote.
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The startup is the latest to join a growing list of fintechs including Acorns, Betterment and Robinhood who have launched cash-management offerings after establishing a customer base with their core robo-advising business. The goal is to be a one-stop-shop for customers' financial needs who are sick of big Main Street banks' high fees and low interest rates.
M1's checking account will be FDIC-insured, as the money will sit in accounts backed by Lincoln Savings Bank. Robinhood faced backlash after it was revealed their cash management offering would not be insured, despite stating that it would be covered by the SIPC, which offers insurance for its brokerage clients. Following Robinhood's announcement, the head of the SIPC said that the accounts would not be insured by the organization.
The checking account will have no fees or minimum balance requirements, although M1 is also planning to offer a premium service, M1 Plus, for a fee. Benefits include a higher-than-average interest rate on the checking account, cash back on transactions, access to additional trading hours and lower lending rates. Membership will cost $125 a year, although a pre-enrollment price of $50 is currently being offered, according to the letter.
M1 drew criticism from some competitors in the space when it dropped its fees at the end of 2017. Andy Rachleff, chief executive of robo Wealthfront, labeled it a "desperate move from a late entrant" at the time. M1 manages roughly $500 million in assets. By comparison, Betterment, the largest independent robo-advisor, has $15 billion under management.
In a letter to customers, Barnes maintained that the core of M1's platform would remain free.
