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Betterment Moves Into Banking

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Betterment, the largest independent digital advisor, is launching an FDIC-insured savings and checking account platform that pays a higher interest rate on savings than almost every other digital and brick-and-mortar bank in the country, provided depositors also sign up for the checking account waitlist.

Those customers will earn a 2.69% APY on their Betterment Everyday Savings account for the duration of this year, which is higher than Wealthfront’s 2.57%. Depositors who don’t sign up for the checking account waitlist will earn 2.43%. Both rates are variable and “may change at any time,” according to the Betterment press release.

Any consumer can sign up for Betterment Everyday Savings and join the waitlist for Betterment Everyday Checking, starting Tuesday. The savings acçount is operational as of Tuesday and the checking account, which will be linked to a Visa debit card and reimburse account holders for ATM fees worldwide, will begin to roll out in September.

The savings account replaces the firm’s lower yielding Smart Saver low-risk bond portfolio, which had a 2% APY and was not FDIC-insured. Betterment Everyday Savings requires a minimum $10 deposit but no minimum balance.

“It was pretty clear that the thing to do next was a high-yield cash product,” Betterment Chief Technology Officer Mike Reust tells ThinkAdvisor, noting that the new higher rate savings account is a response to customers’ “needs and desires to offer all the financial products one can ever want.”

The new banking services, in turn, will help broaden Betterment’s customer base. “A larger number of younger customers are getting into banking before they get into investing,” says  Reust.

He explained that Betterment is able to offer such a high interest rate on its savings account because the account uses a network of banks, rather than a single institution. The partners at launch are Barclays, Citibank, Georgia Banking Co., Seaside National Bank & Trust and Valley National Bank.

David Goldstone, research analyst at Backend Benchmarking, which publishes The Robo Report, says Betterment’s new Everyday account is a smart strategic and competitive move. 

“They’re becoming more involved with people’s day-to-day cash flows, which is a great place to position themselves to help people move from day-to-day spending to long-term investment goals. They can introduce features to help split up that cash flow and address the full cycle of money.”

Betterment’s savings and checking platform also helps the firm stand out among robo-advisors. 

Personal Capital and Wealthsimple, like Wealthfront, offer savings accounts but no checking account, and their APYs are substantially lower than Betterment’s — 2.3% and 2%, respectively.

Acorns and Stash offer checking accounts and financial reward programs for purchases with linked debit cards, but they don’t pay interest on balances. Acorns debit card purchases are rounded up to the nearest dollar and the excess money being invested in six different exchange-traded fundsPurchases with the Stash debit card can earn 0.125% in fractional stock rewards of individual shares or ETFs.

Only SoFi Money comes close to the Betterment offering, combining savings and checking through an interest-paying checking account, but its APY is just 2.25%.

“Keep an eye on Betterment,” said Goldstone. 

According to its latest Form ADV filed May 23, Betterment has $16.4 billion in assets under management spread across just over 542,000 accounts

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