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Home » Investing » Cryptocurrency » Outlet Finance Review: Crypto Lending Positioned As A Savings Account

Outlet Finance Review: Crypto Lending Positioned As A Savings Account

Updated: November 13, 2022 By Robert Farrington

At The College Investor, we want to help you navigate your finances. To do this, many or all of the products featured here may be from our partners. This doesn’t influence our evaluations or reviews. Our opinions are our own. Any investing information provided on this page is for educational purposes only. The College Investor does not offer investment advisor or brokerage services, nor does it recommend buying or selling particular stocks, securities, or other investments. Learn more here.Advertiser Disclosure

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Outlet Finance Review

There is a persistent correlation between risk and reward when it comes to saving and investing. Deposit accounts like savings accounts and certificate of deposits (CDs) usually come with FDIC insurance, which guarantees (within limits) that you won't lose your initial principal.

But in exchange for that security, most deposit accounts offer interest rates that are far lower than the average annual return of the S&P 500. But the stock market can also tank at any time (as we've been recently reminded of), making it a bad place to stash money you might need in the short-term like your emergency fund.

Some financial institutions try to give savers a bit of the best of both worlds by offering high-yield savings accounts with rates above 1.00%. Outlet Finance, however, says they can blow those accounts out of the water by offering up to 5% interest while still offering principal safety.

Is Outlet Finance able to live up to its lofty claims? Keep reading our full review to learn what you need to know before opening an account. You can also see how Outlet Finance compares with other crypto-based savings accounts.


Outlet finance logo

Quick Summary

  • Potential high yield on deposits
  • No maintenance or transaction fees
  • Not insured by the FDIC or SIPC
OPEN AN ACCOUNT

Outlet Finance Details

Product Name

Outlet Finance

Product Type

 Alternative Saving and Investing App

Min Deposit

None

Interest Rate

Up to 5%

Promotions

$5 Signup Offer

Table of Contents
Who Is Outlet Finance?
What Do They Offer?
Are There Any Fees?
How Does Outlet Compare?
How Do I Open An Account?
Is My Money Safe?
Is It Worth It?
Outlet Finance Features

Who Is Outlet Finance?

Outlet Finance is a fintech that utilizes blockchain lending services to generate high interest rates for its deposit customers. Patrick Manfra is its co-founder. Outlet Finance is backed by Consensys, which is a blockchain solutions company. The company launched in the summer of 2019.

What Do They Offer?

Outlet Finance tries to describe its product as a savings account (i.e., “built for Saving & Earning”) or alternative savings. However, it is far from a savings account. Savings accounts are FDIC-insured deposit accounts held at a bank or through a fintech in conjunction with a bank charter.

Outlet Finance is none of those. This is not to say the company isn’t offering value. But it's important not to confuse a traditional savings account with what Outlet is offering.

Rather, it's best to view Outlet Finance has a higher-risk investment alternative.

Related: The Top Savings Apps

Up To 5% Interest On "Savings"

If Outlet is not a savings account but customers deposit money with Outlet and earn interest, then what exactly is going on behind the scenes? Outlet uses blockchain technology to lend digital dollars and generate interest as high as 5% for its customers.

Getting back to Outlet’s blockchain technology, it uses stable coins to complete transactions. Stable coins are meant to act as a fiat currency rather than fluctuate like most cryptocurrencies. When you deposit funds with Outlet, those funds become available to borrowers, which is where the high interest comes from.

Overcollateralized Loans

Can someone default on these loans? Absolutely. But Outlet Finance tries to mitigate your risk by only working with what their network of "overcollaterialized" lending partners.

Outlet Finance Screenshot 2022

Here's how they explain what that means:

"This means that if the borrower wants to borrow $100, then they must put up at least $120 (in many cases much more) worth of collateral. If they do not pay back the loan, then they lose their collateral. This incentivizes the borrower to pay back their loans, otherwise they lose more money than they borrowed."

With Outlet Finance, the collateral that's being used is a digital asset, like Ethereum for example. So on the alternative money markets where Outlet Finance lends money, here's how they say it might work if someone wanted to borrow $100.

"For example, if I want to borrow $100 at 8% interest, I would lock up $150 worth of Ethereum. In order to get back my collateral I would need to pay back $108. If I choose to not pay up, then the lender keeps the $150 worth of Ethereum. On Outlet this is immediately liquidated (sold) and converted back to digital dollars for you."

So, theoretically, you should be made whole but any hard-fast legal documentation on those details is unavailable. Plus, smart contract lending is a very young technology and there are virtually no companies that have established a long enough track record to prove that the model is sustainable.

Smart Contract Insurance

While Outlet can’t provide FDIC insurance, it does provide limited insurance coverage. This is done by insuring against smart contract risk, which is basically a failure of the smart contract code, resulting in a loss of funds.

The company that Outlet is using for its smart contract coverage is Nexus Mutual. Nexus Mutual is not an insurance company. It's an insurtech company that was founded in 2017.

If you check their website at https://nexusmutual.io, you’ll see there are still a lot of links to whitepapers. In the cryptocurrency world, whitepapers don't mean much other than someone's opinion on how something will work - vaporware. 

Is that the case with Nexus Mutual? That’s difficult to say since Nexus Mutual does have paying customers. I’m not aware of Nexus Mutual ever paying on a claim through, which will be the most important test of their viability. Similar to traditional insurance companies, it can deny claims. Additionally, smart contract insurance technology is still in its infancy.

Also, the company has a purchase link to its own cryptocurrency right at the top of the homepage. This is like a traditional insurance company pushing its stock from its website.

Are There Any Fees?

No, there are no administrative fees whatsoever. There are also no fees on deposit or withdrawal transactions.

How Does Outlet Compare?

Outlet Finance is pretty unique in that it simply offers a set rate for return. You don't really deposit your crypto and earn various returns on tokens. Instead, it acts similar to a savings account.

Here's a quick comparison to other products on the market:

Header
Outlet finance comparison
Outlet finance comparison: Coinbase
Outlet finance comparison: Gemini

Rating

APY

5%

Up to 1.50%

Up to 4.86%

Supported Currencies

N/A

25+

20+

Mobile App

Custody Service

Cell
OPEN ACCOUNT
READ THE REVIEW
READ THE REVIEW

How Do I Open An Account?

You can open an account by downloading the app. You’ll find links to both Android and iOS apps at https://outlet.finance. Outlet doesn't currently offer desktop access to its platform.

Is My Money Safe?

There are a number of risks associated with Outlet Finance. First, your money is not FDIC-insured or SIPC-insured. While Outlet does provide smart contract insurance, that is very narrow in its scope of protection. Basically, you are depositing your money with Outlet and hoping everything works out. 

Outlet Finance could disappear at any time. What would happen to your money? Their FAQ page offers no answers. What if a lot of borrowers default on their loans, overwhelming the system?

What happens if either company is hacked (as seems to happen quite frequently in the crypto space)? There are so many questions that savvy savers and investors will have when it comes to Outlet Finance. But unfortunately, there are few answers at this time.

Is It Worth It?

As a savings product, no. The high interest that Outlet Finance may pay isn’t a free lunch and the risks are real. If you're looking for a safe place to stash your emergency fund while earning a solid interest rate, check out our favorite high-yield savings accounts instead.

If you're trying to compare Outlet to the risk you might take by investing in the stock market, there isn’t any comparison. The stock market is heavily regulated. Brokers must be members of FINRA and have insurance with SIPC. There is no regulation at all with Outlet. 

Even as a peer-to-peer lending platform, Outlet Finance's track record, transparency, and investor protections are all lacking. If you're looking to invest with peer-to-peer lending, Prosper, Lending Club, or Funding Circle are all stronger options.

If you choose to use Outlet Finance at all, you should probably view it as an alternative investment. And, as such, you'll want to limit the funds you hand over to Outlet to a small percentage of your overall investing portfolio (preferably less than 5%).

Outlet Finance Features

Product Type

Alternative saving and investing app

Min Deposit

$1

Min Balance Requirements

None

Interest Rate On Deposits

Up to 5%

Maintenance Fees

None

Deposit or Withdrawal Fees

None

ACH Integration

Can connect with any bank that uses Plaid (about 9,600 U.S. banks)

Transfer Speed

~5 business days

Insurance

Smart contract insurance provided by Nexus Mutual

Security

Platform built on the Ethereum blockchain

Mobile App Availability

iOS and Android

Desktop Availability

None

Customer Service Phone Number

855-632-9905

Customer Service Email

info@outlet.finance

Promotions

$5 signup offer

Outlet Finance Review
  • Commissions and Fees
  • Ease of Use
  • Customer Service
  • Investor Information
  • Safety and Security
Overall
3.2

Summary

Outlet Finance is an app that aims to pay high interest rates on saver’s deposits by lending digital dollars on alternative money markets.

Pros

  • Up to 5% interest on deposits
  • Easy to deposit and withdraw funds
  • No fees whatsoever

Cons

  • No FDIC insurance
  • Blockchain lending technology is still new and unproven
  • Learn More
Robert Farrington
Robert Farrington

Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.

He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.

He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.

Editor: Clint Proctor

Editorial Disclaimer: Opinions expressed here are author’s alone, not those of any bank, credit card issuer, airlines or hotel chain, or other advertiser and have not been reviewed, approved or otherwise endorsed by any of these entities.
Comment Policy: We invite readers to respond with questions or comments. Comments may be held for moderation and are subject to approval. Comments are solely the opinions of their authors'. The responses in the comments below are not provided or commissioned by any advertiser. Responses have not been reviewed, approved or otherwise endorsed by any company. It is not anyone's responsibility to ensure all posts and/or questions are answered.
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