Musk launches X Money with 6% interest rate that makes traditional banks look useless

Elon Musk got one step closer to making X the 'everything app' today (28 July), launching his own payment platform 'X Money' and offering a massive 6% interest and 3% cashback.

To put that into perspective, traditional banks usually pay around 0.01% to 0.50% per year in interest, making Musk's new platform a serious competitor to your traditional Chase or Bank of America.

Currently, the rollout is only available to U.S. Premium and Premium+ subscribers, who must be adult residents of the US and hold a US phone number.

Users of X Money will be able to send, receive or request money from other X users without fees or limits, save their Visa debit card inside X, and add their virtual card to Apple Pay through Apple Wallet.

One of the standout features of X Money is the 3% cashback on 'eligible purchases'.

Elon Musk launched X Money today after months of beta testing (ANGELA WEISS / Contributor via Getty)

What counts as an 'eligible purchase' for cashback on X Money?

According to X Money's website, to earn cashback rewards, a transaction must meet a few basic criteria:

• Any Settled Purchase: All settled debit purchases made using the X Card anywhere Visa is accepted, as long as your Stored Value Account has a positive balance and is in good standing.
• Excluded from cashback: Cash advances, gambling, and crypto purchases are excluded
• Payout Schedule: Accrued cashback is calculated and credited to your account every 7 calendar days
• Rounding: Cashback amounts are rounded down to the nearest cent.

Just to really seal the deal with US customers, X is also offering a $15 welcome deposit for joining the platform.

X Money is also emphasizing the security features that come with the account, saying on X "Your Money account is secured with passkeys for safe and fast authentication.... Every card transaction is protected by Visa’s security and risk management capabilities".

X Money users can get a physical card (@satoshi_gfa18 / X)

X Money 6% interest rate

Musk's 6% interest rate is around 15 times the national average, but there is some fine print users ought to be aware of.

Premium+ Subscribers: Get automatic access to the top 6% APY on their cash balance.

Standard Premium Subscribers: Must set up qualifying direct deposits into their X Money account to unlock the 6% APY.

It's also important to note that X itself does not hold your money or operate as a chartered bank, instead, users funds will be held by Cross River Bank an FDIC-member institution, guaranteeing individual accounts up to $250,000. For high-net-worth users, X Money operates a cash sweep program that distributes balances across a network of partner banks, extending combined FDIC coverage up to $10 million.

Why it's risky for X

Financial analysts and lawmakers have pointed out that because the Federal Reserve's interest rates sit well below that 6% (around 3.5%), X is likely losing money on every dollar deposited.

Why officials are calling X Money a 'national security risk'

While all of this sounds like a dream, some officials have sounded the alarm, including US senator Elizabeth Warren, who voiced her concerns about the platform in an open letter to Musk back in April this year.

Warren wrote: “If your track record operating X is any indication of how you’ll operate X Money, consumers, our national security, and the stability of the financial system may be at risk,”

Warren continued: "Your failure to operate X in a safe and responsible manner does not breed confidence in your ability to safely expand into consumer finance.” These concerns have been brought back into the spotlight today with the launch.