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 changed – Betterment now offers a savings and checking account packaged together and called Betterment Cash Reserve.
Betterment Cash Reserve will consist of:
- Cash Reserve: A high yield savings product currently yielding 3.20% APY
- Checking: A checking account with no fees and the ability to earn cash back.
(Annual percentage yield (variable) is as of 12/14/2022. Cash Reserve is only available to clients of Betterment LLC, which is not a bank, and cash transfers to program banks are conducted through the clients’ brokerage accounts at Betterment Securities.)
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 May 7th, 2022, there are seven program banks – The Bancorp Bank+, Barclays Bank Delaware, Citi®, Cross River Bank, HSBC Bank, State Street Bank and Trust Company, and Wells Fargo Bank. (these have not changed in quite some time)
The funds are held in one of these banks 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 online savings accounts, you’ll get a great interest rate – currently up to 3.20% APY.
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 Cash Reserve.
The Betterment Checking account is FDIC insured by nbkc, which stands for National Bank of Kansas City.
The key highlights of the product are:
- All ATM fees reimbursed (domestic and international) – The debit card is a Visa and if an ATM accepts Visa cards, then you can use it there with unlimited fee reimbursement.
- No foreign transaction fees – Along the same lines as the ATM fees, this card also reimburses all Visa foreign transaction fees – which are typically 1% on foreign transactions. This makes it one of the best travel debit cards you can find since you can get cash and make purchases without an added fee.
- No monthly maintenance fees, no overdrafts
- No minimum balance required
You can also earn cash back rewards at specific merchants, such as Dunkin Donuts, Walmart, and Staples. (Check the “earn rewards” section of your Betterment account for a full list.)
How Does This Compare?
As a banking product, it’s pretty solid. The interest rate on the savings product is high and you can avoid the slightly annoying six transaction limit. You also get 7x the FDIC insurance since your money can be spread out over seven different banks. This is nice but it’s a perk without much of a punch (you shouldn’t have $250k in your savings account anyway, let alone $250k times seven).
The checking account comes with a debit card with unlimited ATM fee reimbursement worldwide and no foreign transaction fees, which is a great perk you don’t see often. No interest is paid on the account but you can transfer between the two accounts to maximize your interest income.
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 (2.55% APY).
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. Check out our full Betterment review.
Personally, I’m a big fan of keeping things as simple as possible so this makes a lot of sense.
Cash Reserve is provided by Betterment LLC, which is not a bank, and cash transfers to program banks are facilitated by Betterment Securities. Click for details.