Wealthfront Brokerage raised the APY of its cash management account, the FDIC-insured Cash Account, by 6 bps to 2.57% for all balances of $1 and above. This is now the rate leader when compared to online savings and money market accounts. It should be noted that this is not a bank account. It’s a cash management account. In this previous blog post I reviewed the question of how this account compares in safety to a standard savings account.
Wealthfront announced this rate increase in its blog post yesterday:
Today’s new interest rate marks the third increase since we first launched our Wealthfront Cash Account in February.
When it launched in February, it had a 2.24% APY. So the rate has always been competitive in its short life. How competitive will it stay? One thing Wealthfront admits in this blog post is that they will have to lower the rate if and when the Fed cuts the target federal funds rate:
If the rate is lowered by 0.25%, then we will have to lower the rate for our cash account by the same amount.
If they can keep the Cash Account yield at the upper range of the federal funds rate over the long run, they will be a noteworthy rate leader. They will need to be able to exceed this level if the federal funds rate goes back to near zero. During the zero-interest rate years, online savings account rates were able to exceed the upper range of the federal funds rate by 50 to 75 bps. That resulted in many online savings accounts with rates between 0.75% and 1.00% (Let’s hope we don’t go back to those days.)
In addition to a higher rate, Wealthfront is promoting their Cash Account as having two big advantages over savings accounts at banks:
- $1 million of FDIC insurance (standard FDIC insurance at banks is $250k)
- No limit on the number of withdrawals per statement period (bank savings accounts are generally limited to 6)
I have a list of additional features in my May blog post. These features still appear to be applicable today. Also, in that May blog post, I review the details of how safe the Cash Account is as compared to savings accounts.
The Wealthfront Cash Account is available nationwide. New customers can open the Cash Account without opening an Investment Account. Accounts can be opened at the Wealthfront Cash page by clicking "Get Started" and "Open a Wealthfront account."
One thing to note is that Wealthfront isn’t a new brokerage firm. According to this 2012 Forbes article, “WealthFront was started in 2008.” Wealthfront is listed at the Financial Industry Regulatory Authority (FINRA) BrokerCheck website. FINRA is an independent, non-governmental regulator for all securities firms doing business with the public in the U.S. According to this FINRA BrokerCheck page, Wealthfront Brokerage received SEC registration and FINRA registration in 2010. The SEC noted that according “to its Form ADV, as of August 16, 2018, Wealthfront had over $11 billion in assets under management.” Wealthfront currently lists assets under management at $13 billion.
Wealthfront received some bad publicity in December from an SEC enforcement action and fine. According to this Reuters article, an “SEC order alleged that Wealthfront, one of the largest independent robo-advisers, had made false statements about a tax-loss harvesting strategy it offered to clients.” Full details are available in this SEC enforcement action document.
How the Wealthfront Cash Account Compares
When compared to the Savings Accounts and Money Market Accounts tracked by DepositAccounts.com that are available nationwide, Wealthfront Cash Account currently ranks first, regardless of minimum balance requirements.
The above rates are accurate as of 6/27/2019.