One of the common knocks against roboadvisors was what they did with the cash in your account. Charles Schwab's Intelligent Portfolios took some heat because they claimed to be zero fees (above whatever you paid for the underlying ETFs) but some asset allocation went to cash, which yielded very little. Some pointed to that as Schwab getting a fee from the cash in the allocation.
While Betterment doesn't force you to hold a portion of your assets in cash, they did offer a Smart Saver product that earned interest. It just wasn't FDIC insured.
That's all changing – Betterment is going to be offering a savings and checking account packaged together and called Betterment Everyday.
Betterment Everyday will consist of:
- Cash Reserve: A high yield savings account currently yielding 0.30% APY
- Checking: Not yet available but “coming soon”
Read on to learn more about the Betterment Cash Reserve Savings account:
Betterment Cash Reserve (Savings)
Betterment Cash Reserve is Betterment's version of an online bank account. Your funds are put into four “program” banks to get FDIC insurance coverage. As of January 3, 2020, there are 10 program banks – The Bancorp Bank+, Barclays Bank Delaware, Citibank, ConnectOne Bank, East West Bank, Georgia Banking Company, Seaside National Bank & Trust, State Street Bank and Trust Company, Valley National Bank, and Wells Fargo Bank. The funds are held there but managed through the Betterment app and invisible to you.
This means you get FDIC insurance of $250,000 for each insurable capacity – which can get pretty high if you use every partner bank. They currently promote that you have a million dollars of coverage. A million bucks of coverage might sound sexy but there's absolutely no reason an individual should have that much cash sitting around. You should be investing it… but the thought is nice. If your cash is parked, at least it gets a trickle of interest.
That said, much like other online savings accounts, you'll get a great interest rate – currently up to 0.30% APY.
Previously, they offered a promotional fixed rate for the duration of 2019 but that was removed for 2020. The fine print on the “up to” part of the rate is that it is a promotional offer for the rest of 2019 (I copied the terms as of July 10th so the rate cited in the quote below is out of date):
The Betterment Everyday Cash Reserve (“Cash Reserve”) annual percentage yield (“APY”) is based on commitments from program banks if the program was available as of 7/10/2019. 2.69% APY is a promotional offer for individuals who sign up for the Betterment Everyday Checking waitlist and applies to cash deposited into Savings for the duration of 2019. APY is 2.43% as of 7/10/2019 without the promotional offer. APY is a variable rate and may change at any time. Current APY can be found here. No minimum balance is required. There is a minimum deposit of $10.
As you saw in the fine print, there is no minimum balance ($10 to open), no fees on your balances, and there are even unlimited withdrawals. If you've ever been dinged for withdrawing too often from your savings account (the six withdrawal limit rule can be a pain), this account doesn't suffer from that limitation because of how it's structured.
If you were a Betterment customer, this account may sound very familiar. Previously, you could put your cash balance into Smart Saver, which was their high yield cash account. The risk with Smart Saver was that it wasn't FDIC insured. It was fairly safe but FDIC insurance is rock solid. Within the next thirty days, Betterment will transition all Smart Saver accounts to Everyday Cash Reserve.
Betterment Everyday Checking
Since this product is still in the works, it's a little lighter on details but you can sign up for the waitlist.
The key things to know are that instead of four partner banks, Betterment is only partnered with one for the Checking account – nbkc Bank. nbkc stands for National Bank of Kansas City but they're an online bank. This also means your funds are FDIC insured up to the standard $250,000.
With the Everyday Checking, you get ATM fees reimbursed worldwide – a great perk. There are also no account fees, no overdraft fees, and no minimum balance.
If they offer all this, it is a competitive checking account product.
How Does This Compare?
As a banking product, it's pretty solid. The interest rate on the savings account is high and you can avoid the slightly annoying six transaction limit. You also get 4x the FDIC insurance, which is nice but it's a perk without much of a punch (you shouldn't have $250k in your savings account, let alone $500k or $999k).
The checking account comes with a debit card with unlimited ATM fee reimbursement worldwide, which is a great perk you don't see often.
If you want to compare it with Wealthfront, a big roboadvisor competitor, and their cash account – it's very similar. Wealthfront also has $1mm of FDIC insurance and a high-interest rate (0.26% APY as of 3/18/2020). Their partner banks, as of February 2019, were East West Bank, Associated Bank, TriState Capital Bank, and Citibank N.A.
If you're thinking about investing with Betterment, now you can tap into an FDIC insured savings and checking product. This can help you consolidate a lot of your finances in one place.
Personally, I'm a big fan of keeping things as simple as possible so this makes a lot of sense.