The ads popped up on social media. Earn as much as 7% interest on your savings by opening an account with a new start-up.
In this historically low interest rate environment — when the average savings account pays just 0.09% annual percentage yield — the offer might have sounded too good to be true.
Many of the company's customers are now wondering if indeed it was.
A joint investigation by CNBC TV and CNBC.com has found that Beam Financial is having trouble processing customer withdrawals. Some users CNBC spoke with say their withdrawal transactions have been pending for months and that repeated attempts to get answers and updates from Beam have either gone unanswered or were not useful. Many of these email and text updates from Beam put the blame on the company's bank partners or vendors.
San Francisco-based Beam launched in September 2019 and promoted itself as the "first mobile high-interest bank account designed for the 99%."
Brandon Earl, 36, of Meridian, Idaho, opened an account with Beam depositing the maximum the company would let him put in, $15,000, earlier this year.
He heard about Beam through a friend, and also saw ads on Facebook and Instagram.
"I started off with a little bit, to make sure it was all legit, and did my own research to make sure it was good, and felt like it was," Earl said.
His goal was to grow the money, particularly to eventually help pay for his children's college educations. He has a 5-year-old and 2-year-old, and a baby on the way.
He decided in August to withdraw his money and invest it elsewhere. That's when his problems began.
At first, he got no response from the company. Then, he received a message explaining there were delays due to Covid-19.
From there, it got worse, Earl said. Beam's app temporarily went down in September.
Then, Earl started reading online reviews and saw other Beam customers who were experiencing the same difficulty withdrawing their funds.
"It's now been over two months and I still haven't seen my money," Earl said.
"It's been stressful, trying to think of what's going to happen to my money and if I just got scammed," he said.
Now, multiple Beam customers who spoke with CNBC said they are also facing long delays after trying to get their money out. It is unknown how many customers are affected or how much total money is at stake.
Beam's goal was to be the first high interest bank account for millennials, the company's CEO Aaron Du, 37, said in an August 2019 interview with CNBC.com.
Today, the company touts more than 186,000 subscribers on its website. It has $2.4 million in total deposits, according to R&T, a vendor working with Beam. However, a source close to the company said the number of actual accounts may be less than 30,000.
Beam's accounts came with no fees or minimums. Customers could open one with as little as $1. The maximum they could deposit was $15,000, though the company said it planned to eventually expand that to $50,000.
The accounts also came with a minimum 1.7% annual percentage yield.
The start-up was able to provide more competitive rates in part because it had much less overhead than larger financial institutions, Du said.
Beam makes money by providing software-as-a-service to financial institutions, according to its website.
By inviting friends and interacting with the app, users can earn what the company calls "Billies" to temporarily boost their annual percentage rate up to 7% for a day.
If those friends follow through and fund new accounts, their minimum base rate can permanently go up to up to 4%, according to the company's website.
It is not clear how Beam is able to offer interest rates that beat what traditional banks offer.
Beam said it was targeting those Americans who had their savings deposited with banks earning just 0% to 1% interest per year, Du said. At that rate, inflation is eroding their cash over time.
"If you think about $100 in 2008 during the peak of the financial crisis, today it's actually worth $80," Du told CNBC last year. "There's a significant amount of erosion from the fact that banks are not paying above inflation interest. That is a problem."
Notably, Beam is not a bank. The funds deposited with the company are insured by the FDIC through a network of U.S. banks, the company said.
Typically, FDIC insurance covers up to $250,000 per depositor per bank.
Beam also promised its customers 24/7 access to their funds and no monthly withdrawal limits.
Beam's business model involved the use of what is known as a sweep account. The arrangement, which is common and perfectly legal, "sweeps" Beam's deposits into a network of FDIC-insured banks each day. Beam can collect interest or fees on those deposits, and pass those on to its customers.
However, multiple Beam account owners who spoke with CNBC said they have requested to withdraw their funds and have yet to receive their money.
Until recently, Beam listed on its website the names of about 50 banks it claimed to be working with directly. Some of those included Wells Fargo, Citigroup, Morgan Stanley and US Bank.
CNBC reached out to all the banking institutions listed on the site. To date, 17 have responded and said their respective firms have no partnership or relationship with Beam.
The company has since removed all of the financial institutions from its website.
Meanwhile, the Federal Trade Commission opened a Civil Investigative Demand in May to investigate "whether Beam has engaged in deceptive or unfair practices related to its financial products or services, including the accessibility of consumer funds, the advertised rates of return and interest, and the functionality of the company's mobile apps."
The FTC declined to comment because the agency's investigation is not public.
However, the FTC disclosed it has received 68 complaints from customers who say they have encountered delays or have been unable to access their funds. This is according to complaint data obtained by CNBC under the Freedom of Information Act.
"Beam's top priority has been without exception the customer," Beam said in a statement provided by a spokeswoman for the company.
Steve Wolf, 36, of San Diego, had deposited $15,000 with Beam over the past year. He saw his balance earning a little bit of interest and thought, "This seems good," he said.
Then in September, he said the company's app stopped working altogether.
He emailed the company's customer service team, and didn't hear back for days. The automated responses he did receive said it was taking the company longer than usual to respond due the Covid-19 pandemic.
From there, Wolf took to the internet to search for better ways to reach the company directly. It was then that he found Beam's Facebook page, where other users complained they had been trying to withdraw their funds for more than a month.
"I started to freak out a little bit," Wolf said. In late September, he requested to withdraw all of his money.
He also contacted the Better Business Bureau, the Consumer Financial Protection Bureau and the FDIC.
That's when he realized Beam is not insured by the FDIC. The FDIC insurance Beam touts applies to the banks Beam works with, but not Beam itself. Instead, the deposits are FDIC insured through its partner member banks.
To find out where his money was, he needed to know the name of the banks and under whose name the accounts were filed.
"Either way, something's not right," Wolf said.
The safe rainy day fund he thought he had put aside for emergencies turned out to be anything but.
The revelation couldn't come at a worse time, Wolf said, in the middle of a pandemic when he is providing for a toddler and a second child on the way.
"That's not money I lost in the stock market," Wolf said. "That's money that I already made, paid taxes on, was sitting in a savings account and was saving for a rainy day if I needed it and now I'm having to fight and spend hours of time to get it back."
As Beam's customers demanded answers, the reasons it has offered for the delays have shifted.
In late September, Beam sent messages blaming the snafu on one of the bank partners restricting its amounts of daily withdrawals. At the time, Beam also said it was looking for new bank partners.
Then, this past week, the company cited different reasons.
Wolf and other Beam users received an email from Beam blaming the fund transfer delays on the app's provider for Automated Clearing House, or ACH, electronic fund transfers. That company, Dwolla, recently started flagging certain customer-initiated transfer requests for review, Beam said.
"Unfortunately, Dwolla has temporarily placed a hold on electronic fund transfers services to or from your specific Beam account in connection with its review. If it wasn't for this issue, your withdrawal should've been settled by now," Beam's email states.
Dwolla, however, says it is not to blame.
In an email statement to CNBC, Dwolla said that back in September, the company was included in tweets from Beam users complaining that they were not receiving their money.
"We were concerned about references to Dwolla in relation to Beam's delays in allowing consumers to withdraw their money, and reached out to Beam and to Beam's financial institution partner, Huntington National Bank," a Dwolla spokeswoman said.
Based on those discussions, Dwolla said it suspected activity on the Beam application might harm consumers. Dwolla decided to immediately shut down services to Beam with the consumers' best interest in mind.
"We take this situation incredibly seriously. We've been proactive in working with Huntington National Bank to offer assistance in their efforts to return funds to Beam's users in an efficient manner," Dwolla's spokeswoman said.
Dwolla's spokeswoman also said its "suspension of services to Beam does not prevent Beam from returning funds to consumers in any other manner they might choose."
As of Oct. 1, Dwolla terminated its service agreement with Beam.
Also cutting ties with Beam, as of Oct. 31, is the company handling Beam's sweep account, New York-based R&T, according to a letter obtained by CNBC. Beam's strategy relies on sweep accounts, whereby its deposits are swept into FDIC insured accounts each day.
R&T said it "stands ready to work with Beam and its service providers," and that the funds are being "held in a demand deposit account at one, well-capitalized FDIC member bank."
The firm added that it doesn't have the authority or the information necessary to immediately return these funds to the custodian bank, but plans to do so "as soon as R&T receives the appropriate instructions, but no later than Oct. 31, 2020."
R&T said that it believes the delays for Beam customers receiving their funds may be an operational or technical issue on Beam's end.
In a statement to CNBC, Beam acknowledged technical errors have arisen this month.
"In October, our service was interrupted due to causes that were later verified to be fraud committed by certain customers via the "ACH returns" mechanism," the company said.
In an email to customers that went out on Tuesday, however, the company said an issue has persisted for "the past few months."
Beam is currently working "tirelessly" to process outstanding customer transactions, the company told CNBC.
"Beam has made resolving customer support requests its first priority," Beam said in its statement. "A number of the most time-sensitive transactions are currently being resolved. We expect the remaining outstanding transactions to be released as early as Friday, October 30."
Huntington Bank, the only bank known to be working with Beam, has a "custody relationship" with the company, according to a spokeswoman.
However, Huntington is "not currently in possession of any [Beam user] funds and has not withheld any Beam funds," the spokeswoman said. The funds "will be transferred to the custodial account, once R&T is instructed to do so by Beam," Huntington's spokeswoman said.
FDIC protection provided to Beam's customers only protects them if a bank fails. Because Beam is not a bank, those consumer protections don't apply if the company itself fails.
The FDIC wrote in an emailed statement that the agency is "reaching out to Beam Financial to request additional information regarding its relationships with insured institutions and its claims to be able to offer federal deposit insurance through its app."
"If it turns out not to be accurate, the FDIC will coordinate with other agencies and take appropriate action, as is permitted under federal law," the FDIC spokesman said.
Beam is not the only entity offering accounts that are not directly FDIC-insured, according to Greg McBride, chief financial analyst at Bankrate.
"As the consumer, you have to understand that the money might be FDIC insured, but that's only once it gets passed onto the entity that actually has the FDIC insurance coverage," McBride said.
Moreover, technical disruptions can happen at any company, he said.
"The risk of that seems to be more than a bit higher at start-ups that are experiencing rapid growth that don't have the infrastructure that is ramping up at the same pace," McBride said.
Still, investors should question how much risk they want to take on with savings accounts that are supposed to be there when they need them, he said.
Many banks and credit unions offer competitive interest rates. That includes online banks, which tend to be federally insured and provide direct access to the financial institution, McBride said.
Examples include Salem Five Direct, an online division of Salem Five Bank, with .8% annual percentage yield, and Vio Bank, an online division of MidFirst Bank, with .66%, according to Bankrate.
"This is not a situation where consumers should feel like they've got to take risk just to get a better return on their savings," McBride said.
"You can have your lunch and eat it too. You can have higher rates while still protected by federal deposit insurance," he said.
Jim Wilson, 39, of Concord, Calif., tried to transfer $15,000 to his new Beam account in early August. But the company said the limit was $5,000.
"Thankfully, in hindsight," Wilson said.
After opening the account, Wilson did what he could to boost the interest rate, including inviting his wife and some friends to join the company's email list. He said the rate would go up temporarily for a day, only to drop down again.
"I was disappointed with how it was working and the hassle that was going to be involved," Wilson said.
On Aug. 28, he requested to take all of his money out. Today, that transaction is still listed as pending.
The responses he has received from the company are vague.
"We are truly sorry for the delays. But the reason for the delays is that one of our bank partners is restricting the amount of daily withdrawals," Beam recently told Wilson via text. "Thus, we are looking for new banks to partner with. We aim to settle this ASAP. Thank you for bearing with us."
Adding to the frustration, it is not possible to reach anyone at the company by phone, Wilson and other customers have said.
"It's definitely been the worst experience I've ever had," Wilson said.
The delay comes as Wilson and his wife just had their first child and plan to buy a house within a year.
"It's definitely a significant part of my savings," Wilson said. "And it's a month plus now that I have not been able to access any of it."
Beam's customers who are still waiting to get their money said they have learned their lesson on taking risk. But they worry it could be too late.
"The fact that they went completely dark was terrifying," Tiffany Chang, 35, an American living in Hanoi, Vietnam, said of Beam's September outage.
Chang has deposited a total of $4,000 in the Beam account she opened last December.
Chang said things got strange in September when the app became unavailable. When she was able to log in again, there was no account history from Sept. 14 to Sept. 28.
Because she was concerned, she requested to transfer all of her money in late September. Today, she is still waiting for that transaction to happen.
Now, she fears the worst.
"They could just pick up and leave. No one would find them," Chang said. "These are the things that go through your head when you don't know where your money is."
James Guerci, 34, of Westchester County, New York, said he also couldn't log into his account for two weeks in September. When he was able to see his account, it hadn't been updated since Sept. 14, and no new interest was applied since that time.
Before that, Guerci said he was mostly satisfied with his experience. While he thought the concept was gimmicky, he was always able to earn a higher rate on his $5,000 account.
"I kind of debated leaving the money in there, but it just seems the customer service wasn't there," Guerci said.
Next time, he said he'll be more careful.
"I just have to do some more research on my own and make sure that they're solid enough where I'm not worried and that it's insured somehow," Guerci said.
— With reporting by CNBC's Scott Zamost, Jennifer Schlesinger and Karina Hernandez
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