Outlet Finance Review: Can You Really Earn 5% With A Savings App?

Editor's Note: Outlet Finance has closed down operations in early 2023.

These days, you won’t have much luck parking your idle cash in a typical savings account. Even if you find a high-interest savings account, you’re likely looking at earning less than 1%.

But, what if you could earn 5% in interest by depositing your money with Outlet Finance, a blockchain-based lending platform? In exchange for taking on some risk and lending out your cash, you could earn far more interest on your capital than letting it sit in a traditional savings account.

Outlet Finance is a newer player in the exciting world of crypto-based lending. And, in our Outlet Finance review, we’re covering all of the risks and benefits of this platform so you can decide if it’s right for you.

Pros And Cons

Who Is Outlet Finance?

Outlet Finance began in 2019 and was founded by Patrick Manfra. The company's website says that its depositors have never lost money and that there’s currently $700 million in assets on the platform earning interest.

Outlet Finance also states it provides “cash accounts with the highest interest rate in the world." This is certainly a lofty claim, especially for such a young company. Can it deliver on these promises? Let's take a closer look at what it offers.

What Does It Offer?

Outlet Finance lets you earn interest on your idle cash. You manage everything through a simple app. To let users earn interest and reduce risk, there’s several features the platform offers.

Earn 5% Interest On Your Capital

Outlet Finance looks like a high-interest savings account on the surface. But this is a blockchain-based lending platform. And Outlet Finance actually relies on a network of partners to lend out your money and generate handsome returns in the process.

When you deposit your money with Outlet Finance, it’s converted into USD Coin, a digital stablecoin that matches the value of the U.S. dollar. From there, Outlet Finance uses your money to help fund loans from partners like Celsius Network, a popular crypto-based lending platform where users can leverage their cryptocurrencies as collateral to take out loans.

So, as an example, you might deposit $5,000 with Outlet Finance. That money is given out as loans through partners like Celsius. As Celsius earns interest on the loan, you’re eventually paid some of that interest, which Outlet Finance states is 5%.

Interest you earn accumulates in your Outlet Finance account. When you withdraw, your funds convert from USD Coin back to USD and deposit into your original bank account.

Risk Mitigation

Crypto lending platforms pay higher rates than regular savings account. But higher returns come with more risk. Between potential loan defaults and the volatility of cryptocurrency prices, how can you be sure your money is secure when you lend through Outlet Finance?

To be clear, there aren't any guarantees. But Outlet Finance has several protocols in place to decrease risk. For starters, it pools money from lenders together. In other words, your $5,000 deposit might be part of a pool of $100,000 in funds from various other lenders.

According to Outlet Finance, as long as the entire pool isn’t lent out, you can withdraw your funds anytime. However, if a lot of the capital is being lent out or there’s sudden panic to withdraw funds from every lender, there’s a chance you wouldn't be able to access your money.

Secondly, Outlet Finance partners provide over-collateralized loans. This means that borrowers have to put up collateral that exceeds the value of the money they're borrowing. For example, Celsius borrowers put up to 150% the value of the loan as collateral to get better interest rates. This collateral protects lenders should someone default on a loan.

Finally, according to Outlet Finance’s policy, whenever the value of collateral falls below 120%, that collateral is liquidated and funds are paid back to all parties. This helps avoid scenarios where the value of a certain crypto plummets causing the collateral posted against the loan to be worth much less than when the loan was taken out.

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Insurance And Smart Contracts

Outlet Finance is built on the Ethereum blockchain and your funds are stored in a secure digital wallet. However, Outlet Finance isn’t a bank or FDIC-insured. In fact, Outlet Finance doesn’t even hold your funds themselves.

Rather, Outlet Finance works with custodial partner Fireblocks to store your funds. According to Outlet Finance, this protects you against Outlet Finance going out of business, running off with your funds, or being shut down due to regulations.

Outlet Finance also works with Nexus Mutual to provide smart contract coverage. A smart contract is basically a blockchain-based, self-executing contract that occurs when certain conditions are or aren’t met. So, with Nexus Mutual, the idea is to get coverage for when borrowers violate a smart contract, default, and never pay back lenders.

This might sound secure. But keep in mind, smart contracts are a new technology. And Nexus Mutual won’t protect you in the event of coin prices plummeting or your account getting compromised. In fact, when you carefully read its website, it’s difficult to know if Nexus Mutual would even fulfill your claim since this is such a new space.

Are There Any Fees?

Outlet Finance doesn’t charge any fees. This means you don’t pay transfer or withdrawal fees, monthly account fees, or penalties for having a low balance.

How Does Outlet Finance Compare?

Outlet Finance boasts an impressive 5% interest rate. But the company is actually a middleman in the world of crypto lending. Because of this fact, you can often secure higher interest rates by going right to the lending company such as Celsius or BlockFi.

For example, the Celsius Network lets international users earn up to 17.78% APY and U.S. users earn up to 13.99% APY. Additionally, Celsius lets you deposit USD Coin alongside 30+ other cryptocurrencies and stablecoins like:

• Bitcoin
• Ethereum
• CEL Token (Celsius’ own token)
• Litecoin
• XRP
• Uniswap

However, Outlet Finance is easier than Celsius, BlockFi, or other crypto interest accounts since you just link your bank account and deposit cash. You don't have to own any crypto assets at all to earn interest. Here's a closer look at how Outlet Finance compares:

How Do I Open An Account?

You can sign up for Outlet Finance here. After creating your account, you'll need to download the free Android or iOS app and log in. From there, you can link your bank account to your account so you can deposit funds to start earning interest.

Is Outlet Finance Safe?

From a technology perspective, Outlet Finance does many things right in terms of security. For starters, the app uses Plaid to connect your bank account to your Outlet Finance account. Plaid is the same data partner companies like Acorns and Betterment use and is largely the gold-standard for Fintech applications.

The fact that Outlet Finance uses Fireblocks as the main custodian to hold your funds also adds some security in case Outlet Finance goes out of business.

However, you still have to consider the risks of this lending platform. Your funds aren’t FDIC or SPIC-insured. Additionally, Outlet Finance is a very new company. And there’s a frustrating lack of information on the company’s FAQ page, About page, and Risks and Coverage Policy pages.

General regulatory risks in the cryptocurrency space and crypto price volatility are also factors to consider. Overall, crypto lending is a risky alternative investment. So it’s imperative not to put all your eggs in one basket if you stick with this company.

Is Outlet Finance Worth It?

Outlet Finance makes things simple by allowing account holders to just deposit cash and it takes care all of the lending details in the background. However, from a pure interest perspective, other cryptocurrency lending platforms pay more than 5% on certain coins.

It’s also worth noting that, because of the risks in this space, many investors spread out their assets across numerous lending platforms. This way, if one company goes bankrupt or shuts down, you don’t risk losing all of your cash or crypto.

The bottom line is that you can use crypto-lending to diversify your portfolio. But don’t forget to cover the basics first, like building your emergency fund and considering other investment options, like real estate or stocks and ETFs.

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Outlet Finance Features