Despite the fact that around 69% of Americans have less than $1,000 in savings, we, as a country, sit on a collective wealth of extra cash; somewhere in the region of $300 billion is idling in accounts nationwide. These are not emergency funds; rather, it’s what Cat Berman, founder of the new Oakland-based startup CNote, calls “just in case” cash–she estimates that there are around 30 million “oversavers,” who have an average of an extra $10,000 in their accounts.
Berman, a former managing director at Charles Schwab and the founder of several social enterprises, landed on the idea for CNote when she took a look at her bank accounts online and saw several thousand dollars just sitting there. “I thought to myself, ‘What am I doing?'” Berman tells Fast Company. “Why do I have all this money just sitting in my savings account, and not doing good for anybody?” (Experts recommend keeping about six months of funds in cash in the bank in case of emergencies).
CNote is a way to put idle savings account funds toward the public good. The startup allows individuals to invest directly in Community Development Financial Institutions (CDFIs)–Treasury Department-certified organizations whose goal it is to invest in economic development and job creation in low-income communities. There are more than 1,000 CDFIs across America, and they make the kind of “small dollar” loans to local businesses that larger financial institutions generally don’t offer. These institutions do undeniable good–in 2014 alone, CDFIs financed over 4,102 small businesses and 24,466 units of affordable housing. But in his budget proposal for 2018, Trump has proposed cutting the federal program that finances these institutions–the CDFI Fund–from $233.5 million to just $19 million.
CDFIs combine grants from the CDFI Fund with money from private investors and financial institutions in order to make community development loans. But when Berman, looking for a more productive use for the thousands in her own “just in case” fund, thought to invest it in a CDFI, she learned that she, as an individual, could not.
“It’s not that CDFIs don’t need the cash,” Berman says. “There’s a huge unmet need–CDFIs have a deficit of over $600 million in loans they want to be doing, but lack the capital to make happen. And because they’re set up as B2B organizations and accept loans from banks and foundations, they’re just not equipped to handle and vet small individual [investments].”
Berman and her cofounder Yuliya Tarasava built CNote as a vehicle to pool individual deposits and invest them, in aggregate, in a handful of partner CDFIs, including CDC Small Business Finance in California, and the New York-based Excelsior Growth Fund. The platform gives savers a 2.5% return to savers, in contrast to the standard .1% most traditional banks offer. The company was selected as the best startup pitch winner at South by Southwest in March of this year, as well as the winner of the fintech category competition. After a lengthy process throughout the spring and summer, CNote became the first high-yield impact product to be qualified by the Security and Exchange Commission for mass market.
The process from the individual user’s side is very streamlined: There is no minimum deposit, and once users create an account, they will be met with an interface that’s not dissimilar from a standard online savings account where they can link to their regular bank account and transfer money into CNote. Because CNote is an investment product, not a savings account, the return is technically not guaranteed, but the security of people’s investments is based on the historical performance of CNote’s CDFI partners, which have lost no investor dollars since their founding and–like CDFIs in general–are noted for their trustworthy performance.
For the past 10 months, CNote has been testing its product with a small group of accredited investors, whose collective pool of $9 million is being invested in women and minority-owned businesses and low-income communities across the country through projects supported by CNote’s CDFI partners. Now that the platform is open to everyday people, Berman expects CNote will continue to scale up, bringing in more CDFI partners and deepening the startup’s impact investing potential.