What if I told you there was a way to earn 9% APY on up to $100,000 of liquid and federally-insured cash deposits? I hope your first response would be “tell me more,” because by the end of this post you’ll be begging me to tell you less.
Introduction
The company is called Venti (my personal referral link; we both get either $10 or $20 in “points” after you make a deposit — the site gives conflicting information on this and much else), and at first glance, the conceit is simple: pay an initiation fee of $9.99, and then select one of two paid tiers (the website lists a third intermediate tier in some places but not in others, because the company and website are hilariously amateurish):
The “Priority” tier costs $72 per year ($8.99 the first year) and earns 5% APY on up to $15,000;
The “First Class” tier costs $504 per year ($9.99 the first year) and earns 9% APY on up to $100,000.
Obviously, since for the first year there’s only a $1 difference in price and a 4-percentage-point difference in APY, you should sign up for First Class for your first year.
The most important catch in this program is that the “interest” you earn is not credited to your cash balance, but instead to your “points” balance, which is recorded separately. Your cash balance never changes except when you make deposits, withdrawals, or purchases. However, your points balance is included in your total balance (“spending power”) when calculating each month’s interest, so you still enjoy the benefits of compound interest.
In fact, I believe in principle your total balance should continue to compound even after it exceeds $100,000, since that’s supposedly only the maximum cash balance, not total balance, in your account, but I can’t speak to that from experience.
Using points (spending your “interest”)
Of course, money is only worth what you can spend it on, so you’re not earning any interest at all until you redeem your points.
To this end, Venti has implemented the most primitive booking website in history. You can book two things with Venti: airplane tickets and hotel stays, and each has its own portal, interface, and backend. The airfare portal is better than the hotel portal, and I haven’t had any trouble finding results that match the routes and prices available on any normal travel portal.
Hotel bookings, which only became available this month, are still not working great. As far as I can tell they pulled a static list of hotel rates when the site when live, so a lot of the search “results” they return are no longer available. Presumably that will eventually get sorted out, but it’s hard to know since communications from Venti are pretty inscrutable, to the point where my guess is that English is not the first language of any of their marketing employees.
Once you find a flight or hotel you want to book, you’re given the option to pay with a combination of cash (from your cash balance) and points (from your points balance). Importantly, however, you are not given the option to pay with any combination of cash and points.
The catch
Venti limits the number of points you can redeem for reservations to a percentage of the total cost.
In some cases that percentage is almost 100%. For example, they are currently promoting that “For 2024, any hotel quote with a total order MSRP of $120 or less can be booked for under $1 with Points.” When they say “with Points” they’re trying to convey that they will allow you to spend up to $119 of your points balance, so that you’ll owe less than $1 out of your cash balance. But that $119 is your interest on your money: they’re pretending to do you a favor by letting you spend your own money!
You can click around the airline and hotel booking portals yourself to get a sense of what the maximum points component of various reservations is.
For airfares, I’ve seen maximum redemptions of 15% and 25%. Oddly, like the old US Bank Flexperks Travel Rewards card, the maximum redemption seems to be based on the price of the ticket, with 25% redemptions for flights in the lower hundreds and 15% redemptions on more expensive flights, meaning you could redeem $100 in points and $300 in cash for a $400 flight, or $150 in points and $850 in cash for a $1,000 flight.
For hotel stays, there also appear to be price bands, starting at 20% for stays under $500, and then further bands of 17.5%, 15%, and so on down to 5% for the most expensive stay I found: just $1,724 in points for a $34,472, 7-night stay at The Dominick Hotel in New York City. Note that these bands are applied to stays, not nights, so you have the option to get a higher usage rate if you stay under a band threshold by breaking longer stays into shorter, cheaper ones.
The way I think about this is that you are not “saving money” when you redeem points. Instead, you are trying to maximize the amount of interest you are spending and minimize the amount of capital you are spending, since you can withdraw your capital at any time but your interest is locked in their ecosystem and subject to their rules.
What’s really going on here?
It took me a while to figure out what was going through their minds when the Venti gang concocted this scheme, but I think I finally wrapped my head around it: Venti is selling access to commission-free rates, and taking your interest instead.
Consider a normal commissioned transaction. It could be an insurance policy instead of a hotel room, but let’s stick with travel for simplicity: a hotel is selling rooms for $100. But hotels are in the hospitality business, not the marketing business, so they announce they’ll pay $20 to anyone who sells one of their hotel rooms. Not wanting to undercut their own feeble marketing efforts, they further insist that they’ll only pay the $20 to people who sell their rooms for $100.
This gives every tout a $20 budget to spend on marketing hotel rooms, and as professionals, they can make $20 go a lot further than a harried hotel manager can. What a lot of them ended up doing was creating loyalty and rebate programs. In this stylized story, Hotels.com takes that $20 per night and gives $5 of it to their own members, or at least the ones who accumulate enough rewards to ever redeem them for anything. They give another $1 to cash back portals to drive more traffic to their site so they can collect more of those $20 bills. The cash back portals give $0.25 of their dollar to bloggers when people sign up with their affiliate links.
Consider another, parallel ecosystem in the banking industry: brokered accounts. Ordinary people, if they encounter these at all, see them in the form of mortgage brokers and those ads in the back pages of the newspaper for brokered CD’s. You can think of a brokered CD as having some “true” rate of interest the bank is willing to pay to brokers for collecting deposits, such that they’ll make the profit they expect when lending the money out. The broker can then pay depositors whatever interest rate they’re willing to accept, and collect the difference as their “commission.”
At Venti, they seem to have looked at these two ecosystems, added a weekend of cocaine and ecstasy, and finally had the audacity to ask, “why not both?”
Here’s my crude version of their business model.
Venti’s custodian, Veridian Credit Union, has some “true” underlying rate of interest they will pay anyone who collects money for them. If I had to guess, that rate is somewhere between 4% and 6%, but there are doubtless different tiers and bonuses that affect it as well. It is, in any case, nowhere near the 9% APY Venti promotes.
As indicated above, Venti also charges customers account initiation and annual fees.
Finally, Venti is paid a commission for selling flights and hotels through their crude booking portals. Remember, you can book flights and hotels using only your cash balance, without using any points at all, and on those transactions you pay full price and Venti collects the merchant’s full commission. Together, I think these three sources make up virtually all the company’s hypothetical revenue.
Next, Venti credits customers’ points balance with whatever interest rate they’ve paid for, while capping the number of points you can use at their commission rate, or a formula more or less approximating it. Since the commission is not a main or even important source of income, they can afford to be generous with these redemptions, like the $119 redemptions for $120 hotel stays. Even if $119 is slightly more than the commission they earn on the stay, they’ve still been earning interest on your money for all the months it took you to accumulate $119 in points.
We can quibble about the details later, but take as given for a moment that this is an extremely profitable business model: they are selling something that costs them nothing, while collecting interest on other people’s money. It’s a kind of charming inversion of the free money dynamic that powered the careers of so many idiots during the last decade. Now that money is expensive again, they’ve changed gears from spending to collecting as much of it as possible!
The problem with airfare
There’s an obvious reason why cashback portals don’t pay out on flight reservations: there’s no money in the commissions. Airlines aren’t like hotels or car rental agencies that are desperate to get the word out: they can afford marketing departments and they go to a lot of trouble to differentiate themselves. Whether you think airfare is or should be treated as an interchangeable commodity is beside the point: I do not believe airlines are going around paying 25% sales commissions on $500 flights.
I am sure that Venti is aware of this problem, and I am sure that they consider selling airline tickets as well as hotel rooms to be a necessary cost of doing business. No one would buy into this crazy ecosystem just to get very slightly discounted hotel rooms (eventually, maybe, if they leave their money long enough without Venti going bankrupt).
Their survival as a going concern, therefore, relies on a favorable balance between airline and hotel points redemptions: enough customers have to redeem their points for hotel stays, which cost Venti nothing, to make up for customers redeeming for flights, which Venti has to pay near-market rates for.
But Venti has no control over that ratio, and any heavy-handed attempt to push customers away from flights towards hotels will simply drive them and their money away.
And this is, indeed, the story of so many companies that blip into existence, trundle along uneventfully until travel hackers discover them, and are then wiped out in a few weeks or months of extreme usage.
Conclusion
I do not think Venti is long for this world, at least in its current form, but once you understand how it works, it does offer a pretty clear value proposition: you can earn 9% APY in value that can be redeemed for up to 25% of the cost of paid airfare.
That’s not earth-shattering, but earth-shattering is a high bar to hold a 21st century travel or finance start-up to. Notwithstanding the enthusiasm of affiliate bloggers, most of what we do isn’t earth-shattering. Venti is a way to earn above-market interest on your savings if you sometimes pay cash for airfare.
If all of your travel needs are already met with points and miles, then you certainly shouldn’t lock any money into their system, but a lot of us pay cash from time to time, particularly for the cheap domestic flights where Venti lets you spend down your points balance most aggressively. Since I have a First Class membership (these were free back in December, although I still had to pay the $8.99 initiation fee), I’ll probably leave a few thousand dollars in my account earning 9% APY and clean out my points balance every few months when I book domestic travel.
