Is Starbucks The “Worst Bank?” Here’s Why Your Money’s Better Off Elsewhere
When we think of banks, we usually use traditional institutions or fintech apps to keep our money safe while earning some interest.
But what if I told you that Starbucks is acting like a bank without the benefits? According to the coffee giant’s recent 10-k filing with the SEC, the company has billions of dollars in unused card balances from its customers. While these actions don’t mean Starbucks is a bank, the prepaid cards and mobile app system make it function like one.
Let’s examine the coffee chain’s finances and explain why preloading your account costs you more than you think.
How Does Starbucks Hold Your Money?
When you download the Starbucks app, you have the option to preload funds or buy gift cards.
Say you preload $10 each week whenever you buy coffee. Instead of carrying cash or a credit card, you pay through the app, and that’s it. This system is incredibly convenient when you’re a Starbucks fan and spend your coffee money reliably.
However, the company has the power to hold your money until you decide to spend it. So, if you stop using the app, consider it lost.
In 2022, Starbucks reported holding $1.6 billion in gift card balances. That’s money sitting in their coffers and making revenue while offering nothing to their customers besides the occasional pastry or drink.
Why You’re “Loaning” Money To Starbucks By Preloading Your Account
Preloading your Starbucks account and not using it is almost like giving the company an interest-free loan.
Imagine if that same cash was sitting in a high-yield savings account, going towards your 401(k), or even paying your bills. You’d at least be earning some interest or paying off debt, even if it’s only a small amount. Instead, that money is kept “hostage” in your Starbucks account until you spend it.
So, before you preload, remember where the money’s going. Starbucks benefits with every unused dollar, and this small act could lead you to miss other financial opportunities.
What Happens to Unused Funds On Gift Cards?
The truth is that a big percentage of preloads go unspent.
This is known as “breakage”—the amount left on gift cards that never gets used. In 2022, Starbucks earned $196 million from these unused balances. While you might forget about a $5 or $10 gift card in your drawer, Starbucks will pocket it as a profit. And if you’re regularly adding funds to the app, you’re potentially forking over a chuck of your hard-earned cash.
Ultimately, your unspent money is another way the company can profit off you and millions of other customers.
The Loyalty Program Trade-Off
The Starbucks loyalty program encourages you to preload funds to earn stars for future rewards.
However, is the trade-off worth it?
Preloading money earns you two stars for every dollar spent, compared to one earned when using a credit or debit card. This makes sense for regular users who use their balance up quickly. They go to Starbucks at least a few times a week, so the chances of them getting something for free are much higher.
But if you’re only grabbing a coffee here and there, you’re probably leaving more money on the table than you’re getting in return.
How to Maximize Rewards Without Preloading Your Money
The good news is that you don’t have to sacrifice money to access rewards.
Starbucks lets you participate in its loyalty program without preloading funds. Simply use the app to earn stars and pay using your credit or debit card. This way, you can keep your money where it belongs while still enjoying building points on your app.
You’ll have the best of both worlds—free coffee and more control over your money’s whereabouts!
The Bottom Line
While Starbucks’s most loyal customers might enjoy the chain’s preloading system, it might not be the best choice for everyone else.
There are so many financial opportunities out there. Don’t waste your money just to get a free coffee.
Ultimately, financial security and putting your cash to good use is what matters!
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