If you became an adult during the recession (like many of us) you might barely even remember the days of savings accounts paying significant interest. But with the Federal Reserve finally making changes that lead to higher interest rates across the country, bank accounts are looking more attractive.
That’s why we’ve been eyeing a new breed of high-yield savings accounts from some of the top roboadvisors (online companies that help you invest your money using algorithms instead of financial advisors). Betterment and Wealthfront both have a new online savings account and there are rumors that other fintech startups like Robin Hood and Stash are considering getting in on the game, too.
And who among us doesn’t enjoy saving money?
“I signed up for the Betterment savings account because its interest rates blow the others out of the water,” says Nishant Mani, chief marketing officer at Fabric. “I already had a Betterment login for my 401(k), so it made sense to sign up for other products from them.”
Emily Johnson, head of insurance products at Fabric, made a similar decision. “I’ve been a customer for a long time, so I liked the idea of consolidating my accounts. I don’t want to put all my money in the markets right now in case there’s a downturn, so I was looking for the best way to maximize my cash while still keeping it safe.”
I’ve been doing my banking online for years now, but my colleagues are making me wonder: Should I also look into opening a new savings account with Betterment, Wealthfront or somewhere similar?
So I wanted to ask: How do these new accounts compare to each other and to what’s already out there?
Plus, what’s the deal with online-only banking? How’s it the same or different from a traditional checking or savings account? Is it the best choice for most people to go with a bank that doesn’t have any physical branches?
The savings account—called Betterment Everyday Savings—is available now. There’s a waitlist for the checking account, which is supposed to launch later in 2019.
Because this is a savings account, your money isn’t subject to market risk the way it would be if it were invested in stocks and bonds.
The main reason people are excited about the Betterment savings account is that it offers some of the highest interest rates in the country. As of August 21st, 2019, it’s offering up to 2.39% APY. In order to get that high rate, you need to sign up for the checking account waitlist, too. If you don’t, your rate is still pretty good (2.14% APY) but not quite as high.
There’s no minimum balance or fees, and the account offers unlimited withdrawals. Which is great if you’ve ever gotten tied up by the rule that many savings accounts have about only making six withdrawals each month.
Importantly, this new savings account is FDIC insured, which means that the government will insure up to $1 million of your money. Previously, Betterment used to offer a “Smart Saver” account that worked similarly, but wasn’t FDIC insured. The Smart Saver account is no longer available and all existing accounts are being converted into Betterment Everyday Savings. Which we think is great, because that means that all the accounts will be FDIC insured.
According to the marketing—because remember, the checking account itself isn’t live yet—there won’t be any account or overdraft fees on the checking account, no minimum balance and your ATM fees will be reimbursed worldwide.
For the savings account, Betterment has partnered with other banks (Citi, Barclays, Valley National, Seaside National Bank & Trust and Georgia Banking Company) that literally hold your cash. But Betterment will let you manage the money through its app and website, and you don’t have to actually deal with any of the partner banks, yourself.
Working with multiple banks also means you get more FDIC insurance than in most cases. Typically, the FDIC insures up to a million per consumer, but only up to $250,000 per bank. Since there are more than four banks working together here, you can go for the whole $1 million if you want (though that’s probably ill advised because that’s a lot of cash to sit around without being invested).
The checking account, meanwhile, is in partnership with one particular bank, NBKC Bank. Despite being called the National Bank of Kansas City, it’s actually an online bank. Because there’s only one partner bank involved with the checking account, up to $250,000 of your cash is FDIC insured.
In many ways, it isn’t. Wealthfront offers an even higher interest rate (2.32% APY at the time that this story was written). Interest accrues every day, and gets compounded and credited to you monthly.
Like Betterment, It is also working with a handful of partner banks and wrapping them into their online platform. Their partners are East West Bank, Associated Bank, TriState Capital Bank and Citi. That’s how Wealthfront makes money—they get a fee from participating banks—but clearly they’re still able to offer excellent interest rates.
And, like Betterment, you can get up to $1 million in FDIC coverage because they’re also working with four institutions (and you get insured up to $250,000 at each).
Remember, of course, that interest rates can (and almost certainly will) change down the road.
The Wealthfront Cash Account (that’s what it’s officially called) has no monthly fee, unlimited fund transfers and access through the mobile app. There’s essentially no account minimum, as you can open an account with $1. That said, you don’t get an ATM card or have access to direct deposit or mobile check deposit. This is a savings account, after all. You’re more likely to get features like those with a checking You also can’t currently set up bill payments so you can send money directly from this account.
Online banking has become popular over the last few years as more and more consumers move their lives online. After all, a brick and mortar branch may have been important before you could simply take a photo of a check in order to deposit it, but now . . .
The big pitch is that online-only banks tend to offer significantly higher interest rates because their overhead costs are low (they don’t need to pay rent, employ security guards and bank tellers, maintain ATMs, and so on) so they can pass on those savings to consumers. That means trading in some conveniences of physical banks in order to earn more money from your cash.
I’m a customer of Ally, an online-only bank, and I haven’t had a physical banking branch in years. For the most part, that’s been totally fine. I deposit checks through my app (or, on occasion, I mail them in via prepaid envelopes if there’s an issue for some reason), pay bills through online transfers and have a physical checkbook that they gave me for free. They don’t have their own ATMs, which is why they reimburse me up to $10 a month in ATM fees (if I stay within their network of Allpoint ATMs, there are no fees at all).
Mostly, it’s worked out great. That said, there have been some specific occasions when it’d be really rad to belong to a bank with branches. For example, there have been a few times when I’ve needed a cashier’s check (like a deposit for a new apartment to rent, or when I was buying a car) and they can’t do that. Instead, I’m stuck trying to do a wire transfer, which is less than ideal.
Similarly, there are times when it’s convenient to show up in person, like if you’re looking to take out a mortgage or a car loan, says my colleague Emily.
At the end of the day, the decision whether to go with an online bank is a personal one. For many people, especially those who are tech savvy, I think it’s a worthwhile move. That said, it often makes sense to keep at least one smaller account at a bank that has a physical branch so you can access in-person services if ever you need to.
New savings accounts from companies like Betterment and Wealthfront aren’t meaningfully unique in this way, compared to longstanding online bank accounts like those from Ally or Capital One. The main differences are really just that:
This is newsworthy because companies like Betterment and Wealthfront didn’t previously offer banking products like this, just investing.
They’re offering even higher interest rates than what was out there before.
|Institution||Interest Rate||Account Minimum||FDIC Insurance||Debit Cards||Mobile Deposits & Transfers|
|Betterment Savings Account||2.39% APY if you sign up for checking||$0||$1 million||No; yes when checking is live||Neither|
|Wealthfront Savings Account||2.32% APY||$1||$1 million||No||Neither|
|Marcus by Goldman Sachs||2.15% APY||$0||$250,000||No||No|
|CapitalOne||2.00% APY||$10,000 to earn APY||$250,000||Yes||Both|
At the end of the day, you’ll need to weigh factors for yourself as you try to meet your savings goals at each stage of your life. Interest rates are certainly important, as are things like convenience (for example, do you already have an account with the institution?), ease of making deposits, account minimums and more.
What matters most to you?
Hi, we're Fabric!
© 2019 Fabric Insurance Agency, LLC
Fabric Instant is an Accidental Death Insurance Policy (Form VL-ADH1 with state variations where applicable) and Fabric Premium is a Term Life Insurance Policy (Form ICC16-VLT and CMP 0501 with state variations where applicable). Policies are issued by Vantis Life Insurance Company. (Vantis Life), Windsor, CT (all states except NY), and by Vantis Life Insurance Company of New York, Brewster, NY (NY only). Coverage may not be available in all states. Issuance of coverage for Fabric Premium is subject to underwriting review and approval. Please see a copy of the policy for the full terms, conditions and exclusions. Policy obligations are the sole responsibility of Vantis Life.