Last week Apple effectively dropped the mic on the nation’s banking industry. While the average bank is paying less than a half a percent on savings accounts, the $2.6 trillion technology company announced it would be offering 4.15% annual returns to savers – no minimums, no lockups and FDIC-insured.
The new product rollout comes at a time when regional banks are scrambling in the wake of the Silicon Valley Bank crisis to maintain their deposit bases, and cash-starved fintech startups are likewise struggling. Technically Apple doesn’t have a banking license. It is fronting for Goldman Sachs Bank USA, otherwise known as Marcus, which has a state charter and is FDIC-insured.
In fintech parlance, Apple is a neobank like Chime, Revolut and Monzo – except its brand strength is unparalleled given that there are more than two billion iPhones globally, now serving as Goldman’s branch network. According to polling company Gallup’s annual “Confidence in Institutions” survey, last year, prior to SVB, only 27% of Americans reported to have a “great deal or quite a lot” of confidence in their banks.
That number is down from its peak of 60% in 1979. By contrast, Apple landed in the top spot for the tenth consecutive year in 2022 according to Interbrand’s annual Global Best Brands ranking. The only bank to make the top 25 was JPMorgan, ranked at 24, just ahead of YouTube.“Apple goes at warp speed and a lot of banks are driving 45 mph in the right lane,” says Wedbush Securities analyst Dan Ives.
The new high yield savings account is only available to customers with Apple’s credit card, Apple Card. These users can have an account set-up in minutes and their spend rewards, called daily cash, are automatically funneled into the high yield account.
The account will be displayed on a dashboard in Apple’s digital wallet where users can track their balance and interest earned. The product allows Apple to offer yet another sticky iPhone benefit by strengthening its built-in digital wallet.
“It’s really a flywheel of keeping everything in the ecosystem,” says David Donovon, executive vice president of financial services for consulting firm Publicis Sapient….
The new savings account is only the latest in a series of high-profile financial offerings from the Cupertino technology blue chip. Last month, the company began offering its own buy now, pay later product giving consumers the option to split payments into four installments with zero interest or fees.
I cover fintech for the money team at Forbes. I am an NYU graduate with bylines at AMNewYork, Gotham Gazette, and Prague Daily Monitor. Reach me at emason@forbes.com or follow..
Editor’s note: Automated teller machines, better known as ATMs, are turning 50 on June 27. Computer science professor Pradeep Atrey, from the University at Albany, State University of New York, explains the security features and concerns of modern cash machines.
1. How does an ATM work?
In the broadest sense, an ATM works by accepting a cash request from a user, verifying the user’s authority to access a particular bank account, ensuring that account has enough money to fulfill the request and dispensing the money – all without the assistance of a bank clerk or teller.
When using modern ATMs, a customer inserts a plastic card into the machine’s reader, which registers either the data encoded on the card’s magnetic strip or its embedded chip. It prompts the customer for a personal identification number, usually called a PIN, often four or six digits long.
If the card and PIN match, then the customer can deposit money, check an account balance or, most commonly, request a cash withdrawal. When the customer specifies an amount of money, the machine uses an internet connection or a phone line to connect to the customer’s bank, verifying the funds are available and dispensing the cash.
A more sophisticated theft involves covertly monitoring the device and its users. Thieves can install small cameras in different places on an ATM, sometimes hidden by plastic panels that look like normal parts of the machine. With those, they can capture the card number, its expiration date, the name on the card, and even the three-digit card verification value (CVV) number on the back.
That’s more than enough information to use the card to make unauthorized online purchases look legitimate. Fraudsters may also sell the data in online black markets. By installing fake card slots, or even extra attachments (called “skimmers”) on top of the existing card slot, attackers can read the information on cards’ magnetic strips. That can help them make fake duplicate cards to use in other ATMs.Hidden cameras also let thieves watch users enter their PINs. A recent study found that a thermal camera can also capture PINs, by identifying which number keys are slightly warmed, because they were pressed by the user. Specifically, the researchers found that PIN detection accuracy could be up to 78 percent when the heat traces on the key pad are captured within 30 seconds of authentication.
A similar study reveals that it was possible to find all four digits of the PIN from a distance of 35 centimeters and if the thermal camera was placed at an angle between 30 and 45 degrees. However, it was much harder to identify the correct sequence of the digits.
3. Can ATMs be hacked?
Tech-savvy criminals have several options for hacking ATMs. The outer casings of ATMs often conceal hidden USB ports, used for software maintenance and update. If an attacker can locate the hidden port, he can insert a portable USB drive with a malicious program installed, taking control of the machine. That essentially allows the attacker to dispense cash without using a card.
A few years ago, a new attack became popular. Called a “black box” attack by police, the theft involves cutting holes in the ATM casing and physically disconnecting cables between the computer and the mechanism that actually dispenses the cash. Plugging another computer into the cash dispenser’s controls lets an attacker order it to release large amounts of cash.
The ATM’s telecommunications connection offers another means of attack. By intercepting communications between the machine and the bank, an attacker can collect useful card and account data. That may also offer a way to remotely install malicious software and take control of the machine itself: for instance, to issue commands to dispense cash.
4. What security measures are or can be deployed?ATM-related fraud and theft can’t be completely prevented. Banks are working to develop additional security measures, such as the three-digit CVV on the back of cards. Individuals can also take preventive measures to protect themselves when using ATMs:
If your bank issues them, use a chip-enabled card. They provide improved security by verifying the physical card is genuine, and not a fake duplicate.
It is often safer to use an indoor ATM, rather than one directly on the street, which can be accessed more easily by criminals either before or after your transaction.
Check the ATM to see if it looks like it has been physically altered or damaged, if anything is attached to the built-in card reader (to read the magnetic strip) or if there are any small cameras around the keypad. Avoid using it if anything looks suspicious.
Be careful of your surroundings and the people in the ATM area. A person behind you in line may be trying to catch a glimpse of the PIN you enter on the keypad.
Cover the key pad when entering your PIN so no observer or spy camera can see it.
If you enter the correct PIN but the transaction fails, immediately contact the bank that issued the card to warn them that there might be a problem with the machine or your account.
5. How can new technology make ATMs more secure?
As the ever-escalating arms race between ATM security professionals and criminals continues, customers will find themselves urged to use increasingly advanced security methods to identify themselves at ATMs. One method is two-factor authentication, which adds an additional layer of security a user must pass before being allowed access to an account.
Without this one-time code, an attacker can’t access the victim’s bank account.Future methods of user authentication at ATMs are likely to involve biometrics, like fingerprints, which could augment – or even replace – the cards and PINs that have gotten banks and users through the past 50 years of automated banking.
The logo for Google Pay displayed on a phone screen. Jakub Porzycki | NurPhoto via Getty Images
At least one tech giant has decided it’s better to serve banks rather than taking them head on. Google is shuttering its bank account product nearly two years after announcing ambitious plans to take on the retail finance industry. One key factor:
The new head of the business, Bill Ready, decided that he’d rather develop a digital banking and payments ecosystem instead of competing with banks, according to a person with knowledge of the decision.
For the past few years, bank executives and investors have shuddered whenever a tech giant disclosed plans to break into finance. With good reason: Tech giants have access to hundreds of millions of users and their data and a track record for transforming industries like media and advertising.
But the reality has proven less disruptive so far. While Amazon was reportedly exploring bank accounts in 2018, the project has yet to materialize. Uber reined in its fintech ambitions last year. Facebook was forced to rebrand its crypto project amid a series of setbacks.
“We’re updating our approach to focus primarily on delivering digital enablement for banks and other financial services providers rather than us serving as the provider of these services,” a Google spokeswoman said in a statement.
Google, which is owned by parent company Alphabet, could help banks provide more secure ways for consumers to make online purchases like via virtual cards or single-use tokens. That’s according to the person with knowledge of the company who declined to be identified speaking about business strategy. Those methods cut down on fraud by protecting users’ credit-card numbers.
Google may have ultimately decided it wasn’t worth antagonizing current and prospective customers for its various businesses, including cloud computing, according to a Friday research note from Wells Fargo..banking analyst Mike Mayo.
In recent years, Google has funneled more resources to its cloud business, which still lags behind Amazon and Microsoft in market share. However, it has made steady gains under cloud boss Thomas Kurian, who, along with Google CEO Sundar Pichai, has repeatedly touted financial services as a target in terms of customers they hope to attract.
“Banks are worried about disintermediation, and I think it’s likely that Google executives were getting signals that banks weren’t on board with what Google was going to do,” said Peter Wannemacher, a Forrester Research analyst who advises banks on digital efforts. “They made the bet that there was a greater gain in selling to banks rather than selling to customers.”
Being the customer-facing entity for banks may have risked inviting greater regulatory and Congressional scrutiny, he said. As it is, the public has already become suspicious of technology firms’ reach, he added.
“Financial services is a difficult space to get into,” Wannemacher said. “Everyone knows that, but it’s often more vexing and knotty than people expect.”
You’re retired, and living off two piles of assets—a taxable brokerage account and a tax-deferred IRA. Which should be cashed in first?
For a lot of people, the answer is simple: Use up the taxable assets first. This rule applies if you expect to need both piles to cover your living expenses from now to age 100.
For some people—retirees who have a lot of giving in their plans—the answer is more complicated. Those fortunate enough to fall in this category need to do some calculations. I have on hand a spreadsheet that does the work for you. It spells out which kind of asset should be used up first.
Before delving into the calculations, let’s get some basic assumptions on the table. One is that you are at least 59-1/2, so there’s no penalty for invading the IRA. Next: If you are 72 or older, you have already taken the required minimum distribution from your retirement accounts.
The third assumption is that you have long since sold any loss positions in the taxable account. You should always be attentive to harvesting losses, no matter what your age or retirement plans. What you have left, then, are winning positions burdened with potential capital gain taxes.
If you were sure that, over the course of your retirement, you would eventually sell off all those taxable assets to cover your own spending, then the optimal strategy would be to use up them up, starting with the ones that have appreciated the least. You’d preserve the tax shelter of the IRA as long as possible.
This looks counterintuitive, given that stocks held outside the IRA get somewhat favorable tax treatment while IRA withdrawals are taxed at higher ordinary rates. But it’s how the arithmetic of compounding and tax sheltering works. For an explanation, turn to Guide To Income For Early Retirees, chapter 3.
But what if you’re not sure you’ll be using a taxable asset for yourself?
Consider taxpayer Harry, who wants to spend $100,000 on a boat. He could dip into his IRA, or he could sell off stock at $100 a share that he bought years ago at $80. If he sells the stock he’ll owe some capital gain tax. If he hangs onto it, he figures, there’s a 50-50 chance that the capital gain tax will be bypassed.
There are three ways for that bypass to happen. One is if Harry uses the stock for charitable contributions. Another is if he gives it to a low-income relative whose tax rate on long-term gains is 0%. The third is if he leaves it in his estate and heirs cash it in.
Now the question gets more interesting. Does ducking the capital gain justify invading the IRA? The answer depends on tax rates, the cost basis of the stock and the odds of avoiding capital gains.
To follow along, download my calculator here. Make a copy of this Google spreadsheet file, and play with the copy. (You need to be on Google Chrome to get in.)
I’ve put Harry down for a 24% federal tax bracket, which applies to joint returns with roughly $200,000 to $350,000 of adjusted gross income. His state tax rate is 6%. He qualifies for the 15% rate on dividends and long gains. If his adjusted gross is below $250,000 he won’t owe the 3.8% surcharge on investment income.
To pay for the boat, he needs to either sell off $104,000 of the stock or take $143,000 out of the IRA. He chooses one of those moves.
Time passes. At some point later—12 years later, using the default values in the calculator spreadsheet—there’s a second cash-out.
If it was stock that Harry cashed out at the beginning, he or his heir is left with an IRA that has grown to $257,000 in year 12 and is good for $180,000 of spending money after tax.
If, however, Harry had chosen to use IRA money on the boat and hang onto the stock, the stock would have grown in value. But, absent some way to duck the capital gain tax, it would have yielded only $164,000 on liquidation. Taxes hit dividends along the way and, at the end, they hit the appreciation on the original shares from their $80 cost and the appreciation on shares acquired with reinvested dividends.
In this case the choice of preserving the IRA instead of the stock is a clear winner, to the tune of $16,000.
Harry might, however, escape the capital gain at the end. Perhaps he uses the stock for charitable giving, or he’s still holding onto it when he dies. In that case, the strategy of preserving the stock would leave Harry ahead, but only by a small amount.
The calculator allows for a roll of the dice. Putting in a 50% probability that the capital gain will be ducked, Harry finds that preserving the IRA is the better move.
Insert your own assumptions in your copy of the spreadsheet. You can change tax rates, the waiting time until there’s a second cash-out and other variables. You’ll probably find the arithmetic steering you to the strategy of selling taxable stock to pay for today’s living expenses.
There are circumstances, though, in which it would make sense to hold onto the stock. That can happen if both of these things are true: the stock in question has a low cost basis, and you have a fairly high degree of confidence that you or your heirs will be ducking the capital gain tax.
When using this calculator to plot your moves, follow these steps:
—Apply the decision-making to your highest-cost stock positions first.
—Don’t waste any time pondering whether to sell bonds in a taxable account. They should always be sacrificed before damaging an IRA. If this leaves you with too high an allocation to equities, correct that problem inside the IRA.
—Don’t withdraw from the IRA just because you expect your tax rate to go up in later years. If you are in this situation, do a Roth conversion, paying tax now to make a portion of your IRA permanently tax-free. Sell enough of your taxable assets to pay for both the boat and the conversion tax.
—Keep an eye on the proposal from Democrats to deny wealthy families a capital gain bypass on bequests and gifts. (There is at present no threat to take away the exemption on appreciated property given to charity.) You might need to scale back your odds of benefiting from the bypass.
Play what-if with the calculator by altering the numbers in the yellow cells. You’ll find that the biggest swings in outcomes come from the cost basis of the appreciated shares you may be selling. The length of the holding period and the assumed return on the stock market are less important.
The federal tax rate on ordinary income, which includes IRA distributions, determines how big a withdrawal you would need for your boat. But it has no impact on the wisdom of preserving the IRA. If this perplexes you, I again recommend Guide To Income For Early Retirees. That essay explains how an IRA is best understood not as a tax-deferred asset, but as a shrunken asset that is completely tax-exempt.
For simplicity, my calculator assumes that your spouse or other heir will be in the same tax bracket as you are. It doesn’t allow for a change in your bracket over time, but if such a change is in the cards, follow these rules:
—If your bracket is likely to go down, don’t invade the IRA.
—If your bracket is likely to go up, do a partial Roth conversion right now.Follow me on Twitter.
I aim to help you save on taxes and money management costs. I graduated from Harvard in 1973, have been a journalist for 45 years, and was editor of Forbes magazine from 1999 to 2010. Tax law is a frequent subject in my articles. I have been an Enrolled Agent since 1979. Email me at williambaldwinfinance — at — gmail — dot — com.
An individual retirement account is a type of “individual retirement arrangement” as described in IRS Publication 590, individual retirement arrangements (IRAs). The term IRA, used to describe both individual retirement accounts and the broader category of individual retirement arrangements, encompasses an individual retirement account; a trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries; and an individual retirement annuity, by which the taxpayers purchase an annuity contract or an endowment contract from a life insurance company.
There are several types of IRAs:
Traditional IRA – contributions are often tax-deductible (often simplified as “money is deposited before tax” or “contributions are made with pre-tax assets”), all transactions and earnings within the IRA have no tax impact, and withdrawals at retirement are taxed as income (except for those portions of the withdrawal corresponding to contributions that were not deducted). Depending upon the nature of the contribution, a traditional IRA may be a “deductible IRA” or a “non-deductible IRA”. Traditional IRAs were introduced with the Employee Retirement Income Security Act of 1974 (ERISA) and made popular with the Economic Recovery Tax Act of 1981.
Roth IRA – contributions are made with after-tax assets, all transactions within the IRA have no tax impact, and withdrawals of contributed funds are tax-free. Named for Senator William V. Roth Jr., the Roth IRA was introduced as part of the Taxpayer Relief Act of 1997.
myRA – a 2014 Obama administration initiative based on the Roth IRA
SEP IRA – a provision that allows an employer (typically a small business or self-employed individual) to make retirement plan contributions into a Traditional IRA established in the employee’s name, instead of to a pension fund in the company’s name.
SIMPLE IRA – a Savings Incentive Match Plan for Employees that requires employer matching contributions to the plan whenever an employee makes a contribution. The plan is similar to a 401(k) plan, but with lower contribution limits and simpler (and thus less costly) administration. Although it is termed an IRA, it is treated separately.
References:
See subsection (a) of 26 U.S.C.§ 408 and the Treasury regulation at 26 C.F.R. sec. 1.408-2.
11 USC section 522(n); see also Internal Revenue Code of 1986 sections 408 and 408A. See Willis v. Menotte (In re Willis), 424 F. App’x 80, docket no. 10-11980 (11th Cir. 2011) (per curiam).
by Angelica Alzona for Forbes
The new savings account is only the latest in a series of high-profile financial offerings from the Cupertino technology blue chip. Last month, the company began offering its own buy now, pay later product giving consumers the option to split payments into four installments with zero interest or fees.
