When it comes to savings accounts, robo-advisors are no different from brick-and-mortar or online banks. The annual percentage yields their customers earn on savings accounts are also falling, and the devil is in the details.
Take Betterment, which promoted a 2.69% APY rate when it introduced its Everyday Savings account in late July for consumers who also signed up for its checking account waitlist and 2.43% for those who didn’t. Those rates are now 2.4% and 2.15%, respectively, because interest rates have been falling.
As Betterment notes on its website, the APY on Everyday Savings accounts “is a variable rate that can fluctuate daily, based on the Federal Funds Rate and terms offered by banks participating in Savings [and] … “may change at any time without notice.”
The Everyday Savings website on Wednesday showed a slightly lower APY for those who sign up for the checking account waitlist, of 2.39%, but a link in the first footnote notes that the APY is typically updated every business day by 5 p.m. ET and the rate on Aug. 21 was 2.4%.
(Related: Betterment Moves Into Banking)
Also in the fine print is another link explaining that the higher APY for those who sign up for the checking account waitlist is due to a 0.25% promotional rate increase “that extends at least for the duration of 2019 until every individual on the waitlist has an opportunity to access.” The APY itself does not extend through the end of the year, only the additional 0.25% rate above the APY, a spokeswoman explained.
Despite the decline in rates, Betterment’s savings account APY remains higher than those of other robo-advisors and most traditional banks, in part because it uses a network of banks for the account, rather than a single institution.
Wealthfront’s saving account has an APY of 2.32%, down from 2.57% previously and Personal Capital’s savings account has an APY of 2.05%. All are well above the national interest rate of 0.9% for savings accounts during week of Aug. 19, according to the FDIC and very competitive with the rates paid by the top 1% of banks with the highest savings account APYs. (Approximately 40 banks, most online, are paying above 2% but many require minimums of $1,000 or more to qualify for the higher rate, according to Depositaccounts.com.)
Robo-advisors are evolving in ways beyond the introduction of high-interest savings accounts along with checking accounts, debit cards and budgeting and spending capabilities.
Several have introduced socially responsible investment options and their performance numbers are promising, according to the latest Robo Report, which covers the second quarter.
The SRI portfolios of robos from Morgan Stanley, Wealthsimple and TIAA, for example, all outperformed their benchmarks and their non-SRI ETF counterparts over the 12 months ended June 30.
The Morgan Stanley SRI portfolio returned 7% vs. 5.47% for the firm’s non-SRI portfolio and beat its benchmark by almost more than 1.4 percentage points. The Wealthsimple SRI portfolio similarly beat its non-SRI counterpart, 7.4% vs. 3.9%, and outperformed its benchmark by an even larger margin, 3.5 percentage points. The comparative numbers for TIAA were 6.7% vs. 5.6% and an additional 1.15 percentage point gain over its benchmark.
The Wealthsimple SRI portfolio was also the best performing portfolio for one-year trailing returns of taxable robo portfolios through the second quarter and the Morgan Stanley SRI was the third best performer, according to The Robo Report. tracks.
“Screening companies for SRI factors can be positive indicators of company performance,” said David Goldstone, research analyst for Backend Benchmarking. “Clearly consumers are showing more of an interest in responsible investing. Investors seem even more interested in SRI than active portfolios. We’ll see if this trend continues.
The Robo Report rated Fidelity Go the best overall robo for the second quarter due to strong portfolio performance, low costs and a strong digital planning platform. Fidelity Go charges an all-in 0.35% management fee for portfolios constructed entirely of proprietary Fidelity Flex mutual funds and has no minimum. For accounts that have access to a financial advisor, the fee is 0.50% and the minimum is $25,000.
Vanguard was rated runner-up. Its Vanguard Personal Advisor Services partners investors with a financial advisor, requires a minimum investment of $50,000 and charges a 0.30% advisory fee, plus fees for the funds in an account portfolio, which are generally Vanguard’s own low-cost funds.
— Check out Acquisitions and Closings Mean Fewer Independent Robo-Advisors on ThinkAdvisor.