Betterment is the latest investment company to offer a high-yield savings account. In June, I wrote about the investment company Wealthfront and their high-yield savings account, what they call their FDIC-insured Cash Account. Last month Betterment introduced the Betterment Everyday Savings. Like the Wealthfront account, the Betterment Everyday Savings is technically not a savings account. It is a cash management account in which deposits are swept into FDIC-insured accounts at program banks.
Betterment is not a bank. It’s an investment company that specializes in robo-advising. In the investment world, robo-advisors provide customers with financial advice and investment management online in an automated way with low fees. Betterment is joining Wealthfront and other fintech companies in offering high-yield savings accounts to attract more customers.
The Betterment Everyday Savings currently has a promotional APY that’s 25 bps above the base APY. It may appear that the promotional APY is guaranteed to last through 2019. That is not exactly true. The only guarantee is that customers will receive a promotional rate that’s 25 bp higher than the base rate through 2019. Both the base rate and the promotional rate can fluctuate based on the federal funds rate.
The APY is “based on commitments from program banks,” and according to this Betterment article, the “Savings rate will continue to track alongside the Federal Funds Rate.” Betterment provides this page with the current APYs, and according to this page as of the morning of 8/5/2019:
The last reported promotional APY 2.44% is and the last reported APY without the promotion is 2.19%.
There was a short period of time when Betterment was offering a 2.69% APY, which was a leading rate among online savings accounts. The 25 bp decline matches last week’s decline of the federal funds rate.
The promotional APY will remain 25 bps above the standard APY through at least the end of 2019. Qualifying for the promotional APY is currently very easy. It just requires that you join the waitlist for the Betterment Everyday Checking. There’s no obligation to open the checking account once it becomes available.
Betterment Everyday Savings Features
Like Wealthfront, Betterment is touting two advantages of its Everyday Savings over savings accounts at online banks:
- FDIC insurance covering up to $1,000,000 (standard FDIC insurance coverage at banks is $250k)
- No limits on withdrawals (bank savings accounts are generally limited to 6 per statement period)
The issue of FDIC insurance and the safety of this Betterment Everyday Savings requires a discussion, but before going into that issue, here’s a summary of the features of the Betterment Everyday Savings:
- Minimum deposit is $10 (per FAQ)
- No minimum balance (per FAQ)
- No fees on your balance (per FAQ)
- Joint accounts are not available at the present time (per FAQ)
- Accounts for trusts are not available at the present time (Per FAQ)
- Maximum deposit limit per ACH transaction is $300,000. There is no maximum withdrawal amount (per T&C)
- Deposits and withdrawals from/to your linked checking account generally take 1 to 2 business days to complete (per FAQ)
- Account will not have its own routing and account number. You won’t be able to wire funds in or transfer funds in directly from another unlinked bank account (per FAQ)
- Interest (when amount is at least $10) will be reported on Form 1099-INT (per FAQ)
Since this isn’t a bank account, there’s no routing and account number. Thus, you’ll have to depend on Betterment’s funds transfer system to move your money to and from other institutions. This is an important downside of this not being an actual savings account.
Betterment Everyday Checking
The checking account has yet to be launched. There’s only a waiting list. According to the FAQs, it will be available later this year. The FAQs also described the following features:
ATM fees will be reimbursed worldwide and the cash in your checking account will be covered up to $250,000 in FDIC insurance. Plus, there are no minimum balances, no maintenance fees, and no overdraft fees.
Note the standard FDIC coverage. Unlike the Everyday Savings, the Everyday Checking appears to be an actual checking account that’s held by an FDIC member bank. According to the small print of the FAQs, the Everyday Checking will be provided by nbkc bank, an FDIC member based out of Overland Park, Kansas.
The Betterment Everday Savings is available nationwide. You must be at least 18 years of age and reside in the U.S. full-time. New customers can open the Everyday Savings without opening an Investment Account.
The Everyday Checking will be available later this year. New customers may sign up on a waitlist for the Checking. Signing up on the waiting list does not obligate the customer to apply for the Checking once it becomes available.
According to the FAQs, no credit checks are run when applying for these accounts.
Only individual accounts can be opened. Joint accounts and trust accounts are currently not available.
Safety and FDIC Coverage of the Betterment Everyday Savings
Just like Wealthfront’s Cash Account, the main risk occurs when the money is temporarily being held by Betterment as funds are being deposited into or withdrawn from the Everyday Savings. Once it’s in the bank account at one of the program banks, it will have FDIC insurance coverage. The Terms and Conditions document reads as follows:
You acknowledge and agree that until your funds are received and processed by Deposit Banks, your funds will not be FDIC insured.
Also, the funds may not be covered by SIPC during the time when the funds are not covered by FDIC insurance. According to the Betterment Everyday Disclosures, “The deposits in Savings are not covered by SIPC.”
What I mentioned about Wealthfront’s account also applies to the Betterment Everyday Savings. It appears very safe, but I can’t say if it has the same level of protection as a savings account at an FDIC-member bank.
Betterment has dedicated this page for the up-to-date listing of the program banks for the Betterment Everyday Savings. Below are the program banks listed as of 8/2/2019:
- Barclays Bank Delaware
- Citibank, N.A.
- Georgia Banking Company
- Seaside National Bank & Trust
- Valley National Bank
You may opt out of holding cash at a specific program bank.
When the Everyday Checking becomes available, the account will be provided by nbkc bank.
Betterment is a well-established investment company, founded in 2008, and as of July 2019, it has $16.4 billion of assets under management. According to this CNBC article:
Betterment has raised $275 million to date from investors like Citi Ventures Menlo Ventures. It notched an $800 million valuation after its Series E funding round, according to Pitchbook.
I can’t say how healthy Betterment is. This Economist article suggests that they may not be very profitable:
skimpy fees mean they need hefty assets to survive. In a report in March hsbc claimed that robo-advisers need to oversee $11bn-21bn of assets to break even. Jon Stein, Betterment’s boss, says that the company is profitable, helped by low costs for running the accounts. But it is probably a close-run thing.
How the Betterment Everyday Savings Compares
When compared to the Savings Accounts and Money Market Accounts tracked by DepositAccounts.com that are available nationwide, 12 accounts have yields higher than the Betterment Everyday Savings promo rate, regardless of minimum balance requirements.
The above rates are accurate as of 8/5/2019.