New Bank Offers 3% Interest Rate for ‘Good Behavior’

A new online bank called HMBradley will pay customers an industry-topping 3% interest rate if they save at least 20% of their income every month in their accounts.

The bank, unveiled on Wednesday, is backed by investors who include PayPal founder Max Levchin.

While other online banks, including Goldman Sachs’ Marcus, have been trying to woo customers with higher interest rates, HMBradley wants to distinguish itself by rewarding what it calls “good behavior.” In practice, this means higher rates for those who sign up for direct deposits and save a portion of it each month.

While the headline 3% applies to those who save over 20%, the bank will pay lesser rates—from 1% to 2.25%—to those who save less. HMBradley says the interest will be paid on the entire balance in the account, and the rate will be adjusted every three months. The accounts will go live in January, but people who enroll now can earn 3% interest as a sign-up bonus.

In an interview with Fortune, CEO Zach Bruhnke said what sets HMBradley apart from other so-called “challenger banks”—which typically offer debit cards and zero fees—is a business model that relies on a traditional banking strategy of loans and deposits.

“Every challenger bank is the same and offer similar hooks like ‘get paid early’ or ‘don’t pay a fee.’ They’re all focused on getting you to swipe your debit card, while we’re after people who want to save,” said Bruhnke.

The name HMBradley, he says, is meant to invoke staid long-lasting institutions like JP Morgan, and eschew the gimmicky “one word nouns” used by other challenger banks. Bruhnke adds the letters H and B in the name are a nod to Berkshire Hathaway, whose founder Warren Buffett, is his idol.

“HMBradley presents an entirely new experience that will change how consumers think about banking,” said Levchin in a statement. “It was developed to help anyone be more responsible with their money.”

HMBradley’s debut comes at a time when a growing number of challenger banks and other financial startups are offering banking products. These include money transfer service Venmo, loan and personal finance startup SoFi, and the stock buying app Robinhood. The latter recently announced a 2% interest rate after botching an earlier promise to offer 3%.

Bruhnke believes HMBradley stands out from such competitors not only with its focus on savings but for its technology operations. Unlike many challenger banks, which rely on a network of partners to handle payment processing and other back-end tasks, HMBradley has built its own tech infrastructure, which Bruhnke likens to those of American Express or JP Morgan Chase.

This reliance on its own technology could be significant given how challenger banks have run into unexpected outages caused by third-party vendors. Notably, customers at online banks Chime and Varo Money were abruptly cut off from their accounts for more than 24 hours last month after their service provider, Galileo, suffered a massive outage.

HMBradley is also taking a different tack from other challenger banks when it comes to fees. Bruhnke jokes he wanted to advertise that it will have fees— but only for transactions that fall outside of day-to-day banking such as wire transfers or “replacing your debit card for the fourth time.”

As for how it will make money while offering 3% interest rates at a time when the Federal Reserve rate is well under 2%, the new bank plans to rely on a time-honored strategy—lending money at higher rates than what it pays out. Among the first of its loan products will be a credit card that HMBradley says requires only “one click” before being approved, and whose rates will vary depending on the customers’ credit profile.

Whether HMBradley succeeds in all this may depend on whether it can get consumers’ attention in the first place—especially in what appears to be a saturated financial services market. According to Bruhnke, he believes the new bank will get attention from word of mouth, and with the help of a board and executive team that includes veterans of Goldman Sachs, Capitol One and USAA.

In announcing the public launch of HMBradley, the company also disclosed it has raised a $3.5 million seed investment round from Levchin, Accomplice Ventures, Walkabout Ventures, Mucker Capital, Index Ventures, and others.

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