Elon Musk’s New ‘X Money’ Offers 6% APY And 3% Debit Cash Back. This Math Can’t Last

I received an invite to X Money, which is Elon Musk’s new financial account: in-app wallet; peer-to-peer transfers; Visa debit card; bill pay, wires, and bank transfers; savings account.

The $25 signup bonus posts instantly – there is no account activity required.

Remember that X.com was Musk’s original online payments and banking company that he founded in 1999 and merged into what became PayPal a year later (he was CEO of PayPal for about 5 months until he was ousted by Peter Thiel). He bought back the X.com domain from Paypal in 2017.

Thanks PayPal for allowing me to buy back https://t.co/bOUOejO16Y! No plans right now, but it has great sentimental value to me.

— Elon Musk (@elonmusk) July 11, 2017

X Money is part of X, née, which is now owned by xAI – which was acquired by SpaceX. So it’s the payments platform that accompanies your inflight satellite wifi if you’re lucky. In the final sketch of the Elon Musk episode of Saturday Night Live, Musk suggested creating a currency based on “whatever we say it’s based on.” And here we are!

The value proposition is 6% APY, 3% cash back on debit card spend, a metal card, no minimum balance, free ATM withdrawals, and no foreign transaction fees — along with FDIC-linked deposit coverage via Cross River Bank and sweep banks.

Benefits Of X Money

This is Musk’s next move towards the creation of his super app, where you can send and receive money inside X and make funds transfers via Visa Direct and spend with a Visa debit card.

6% on your cash balances and 3% debit card rebates are super rich. Most high yield savings accounts top off around 4% (although there’s a new opportunity I’ll be writing about soon that earns five transferrable points).

FDIC coverage normally tops off at $250,000, but they offer sweep coverage with funds spread across banks to reach $10 million. This is similar to a product I use at work that provides higher insured coverage still. Basically they spread money across multiple FDIC insured banks, where each bank is still subject to the normal $250,000 limit, so they’re topping out at 40 banks.

No foreign transaction fees and free ATM withdrawals are potentially useful as well.

Risks Of X Money

X Money isn’t a bank. FDIC coverage protects against failure of insured banks. Your money gets deposited in banks, and that’s coverage. However:

• A non-bank bankruptcy can take longer to resolve
  
• FDIC protection doesn’t attach when you give money to X Money – it has to first place the funds at the bank and record them as belonging to you.
  
• Balances at the main bank may temporarily exceed insured limits before it gets swept out to other accounts.

An example of this is the Synapse bankruptcy two years ago. They were the connection between fintech apps like Yotta and Juno and banks. And their customer ledger was a mess. Customers thought they had FDIC-insured accounts, but FDIC coverage didn’t actually kick in because no bank had failed. The money may have been at FDIC-insured banks but it wasn’t clear whose money was where. And partner banks actually held about $75 milloin less than Synapse said customers were owed. Ultimately a majority – but not all – of the money was returned to customers.

Here, there’s no more risk dealing with X Money than other fintechs and possibly less because the service is offered by a large public company controlled by the world’s wealthiest man.

But deep pockets aside, one has to wonder how long 6% APY and 3% cash back on debit will be available. It’s also worth remembering that debit card fraud protections aren’t as strong as credit cards.

Also, 3% rebate on debit excludes the following MCC codes and categories:

• 9311 — Tax Payments
  
• 9399 — Government Services
  
• 9402 — Postal Services
  
• 9222 — Fines
  
• 4829 — Wire Transfers and Money Orders
  
• 6010/6011/6012 — Financial institution cash/ATM/financial services
  
• 6051 — Foreign currency, money orders, traveler’s cheques
  
• 6211 — Securities brokers/dealers
  
• 6513 — Real estate agents/managers/rentals
  
• 6532/6540 — payment/funding transactions
  
• 5094 — precious stones/metals/watches/jewelry
  
• 5972 — stamp and coin stores
  
• 7800/7801/7802/7995/9406 — lottery, betting, casinos, racing, gambling

A lot of these are clearly chosen to avoid manufactured spending – no rewards on postal services (money orders, or purchase of stamps to resell); money orders; investments; staps and coins for reselling; gambling. And you can’t pay taxes and earn a 3% rebate either.

And I’ve seen a bit of worry over ‘what happens if my Twitter account gets suspended’? Although I suspect that’s less of a risk than you might think and there’s no more risk here than in dealing with a normal bank that fires customers all the time.

Here, you’ll lose access to your X Money account if your twitter account is suspended for Child Safety or Violent and Hateful Entities policy reasons although funds balance will be mailed to yo by check. However, if you’re suspended for spam, abuse, etc. you can still use X Money even if you can’t tweet.

Eligibility For An X Money Account

X Money is supposed to roll out broadly this summer. As of now it’s limited to a subset of U.S. Premium+ users 18 years and older. They aren’t available to New York or Massachusetts residents.

Basically, you have to be invited to an account. You can’t request an invitation. Having an X Premium+ account and living in an eligible state are necessary but not sufficient conditions for access.

This Level Of Generosity Can’t Last

Every 1% they’re paying over the yield they earn on your deposits costs them $10 per year per $1,000 of balances, or $100 million per year per $10 billion in deposits. They can’t plausibly earn more than 6% on FDIC-insured deposits over a long time horizon at current interest rates, so I expect that this return will change over time (perhaps capped to a certain level, offered to new accounts for a promo period, or reduced altogether).

It makes sense to pay a premium now as marketing. And they perhaps view this as part of a broader cross-sell – for now with X Premium, and monetizing eyes through ad spend, but eventually as part of their super app.

They may earn around 1.2% on Durbin-exempt debit card transactions, but they cannot possibly sustain 3% rebates on debit spend. I loved the rewards debit card I’ve been earning 1% back towards travel with. (They will on average have lower fraud costs than comparable products because verified Premium+ users are less likely to be synthetic identities, but that doesn’t come close to making up the difference.)