If you could avoid financial catastrophe in the future by establishing a healthy amount of savings now – would you do it?
These days, standard savings accounts just aren’t cutting it anymore when it comes to getting a more significant return on your investments. In fact, the average earnings on a standard savings account is just a mere 0.05% interest.
Instead of letting all of your money sit in a checking account or a low-yield savings, you could diversify your portfolio and invest a portion of your money in a Betterment Cash Reserve account.
Betterment is offering a rate of 0.30% APY (variable) when you open an Cash Reserve (formerly, Smart Saver) Account with an opening deposit of any amount. This account type is available online-only, nationwide.
In this article, we’ll review what Betterment Cash Reserve is and how their investment strategy could help you grow your savings faster and retain its value.
What is Betterment Cash Reserve?
Betterment Cash Reserve is a robo-advised investment account where you can grow your funds in low-risk investments (such as government bonds). Depending on your age and risk tolerance, Betterment Cash Reserve automatically invests and re-balances your money in a variety of index funds and bonds.
The following short-term bonds comprise the Cash Reserve account type:
- 80% – U.S. ST Treasury Bonds
- 20% – U.S. ST Investment Grade Corporate Bonds
The U.S. government issues these bonds to investors to borrow money. In exchange, the government issues a return on that investment. Upon purchase, the investor is given a predetermined interest rate until the bond matures. Because the bonds are backed by the U.S. government, the risk and volatility associated with these bonds are considered to be low.
Betterment has a modern portfolio strategy, in which they emphasize diversification across broad asset classes. Betterment uses a portfolio entirely made of exchange-traded funds (ETFs). ETFs are generally low cost and have a high liquidity. Betterment usually chooses the lowest-fee ETFs that offer the best performance, which in turn means solid returns on investments for their customers.
The good news about the Betterment Cash Reserve account is that:
- your savings will be exempt from local and state income taxes (but fully taxable at federal level)
- you’ll be able to enjoy automatic rate increases
- and you won’t have any withdrawal limits if you need to get your money out of the account
The downsides of Cash Reserve accounts are that:
- they are not FDIC-insured (but instead, are covered by SIPC insurance), and
- outgoing transfers to another account can take longer than a traditional account (around 4-5 business days).
Does Betterment Cash Reserve Have Fees?
The fees associated with a Betterment Cash Reserve account are:
- Annual Management Fee
- 0.25% for a Digital Basic Account
- 0.40% for a Premium Account (which includes access to financial advisors and requires a balance of $100,000 or more).
What Are The Benefits of a Betterment Cash Reserve Account?
According to current customers, the advantages of the Betterment Cash Reserve account are:
- Low risk bond investments are backed by the U.S. government (making them one of the safest investments that you can make right now).
- Ability to move funds to external accounts when needed (no withdrawal limits).
- Website and App interfaces are clean and easy to use.
- Automatic re-balancing and robo-advising make it easy to maintain the account.
- Betterment can also be used by consumers who are just starting out and don’t necessarily have a lot of money to initially deposit.
- You can see your account anytime via the website or mobile app.
- You can easily fund your account via bank transfer, mobile deposit or wire transfer.
What Are The Disadvantages of a Betterment Cash Reserve Account?
- Not FDIC-insured.
- Moving money to external accounts takes a long time (4-5 business days).
- Generally operates similar to a money market account – and consumers sometimes felt they could get better APY or returns by choosing a high-yield savings account instead.
If you are wanting to earn a higher than average return on your investment and are comfortable with banking over computer or mobile device…
As of June 2021, here are some rates from competitors that you may want to check out:
- Aspiration Bank – 1.00% APY
- Vio Bank – 0.57% APY
- CIBC Bank – 0.52% APY
- Ally Bank – 0.50% APY
- Citi Accelerate – 0.50% APY
- First Foundation Bank Online Savings – 0.50% APY
- Goldman Sachs – Marcus Account – 0.50% APY
- Synchrony Bank – 0.50% APY
- TAB Bank – 0.50% APY
- TIAA Bank – 0.50% APY
- American Express Personal Savings – 0.40% APY
- Barclays Bank – 0.40% APY
- Capital One 360 Performance Savings – 0.40% APY
- CIT Bank Savings Builder – 0.40% APY
- Citizens Access – 0.40% APY
- Discover – 0.40% APY
- MySavingsDirect – 0.25% APY
- HSBC Direct – 0.15% APY
Does the FDIC Insure Betterment Cash Reserve?
No. The FDIC does not insure Betterment Cash Reserve....but the SIPC does!
SIPC can help protect consumers against the loss of cash and securities – such as stocks and bonds. The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. SIPC only protects the custody function of the broker dealer, which means that SIPC can help restore account assets if/when a brokerage firm liquidation begins.
Furthermore, the Federal Deposit Insurance Corporation (FDIC) is a United States government corporation providing deposit insurance to depositors in U.S. commercial banks and savings institutions. The FDIC insures deposits according to ownership category (such as individual, joint or accounts with beneficiaries). The current maximum amount is $250,000 per depositor, per insured bank, for each account ownership category.
How Do You Access Betterment Cash Reserve Rates?
In order to gain access to the Cash Reserve rates, you’ll first need to open a Betterment account:
- Visit Betterment.com
- Next, Click “Get Started”
- Select “Investing”
- Answer their questions pertaining to your “risk portfolio” to help them guide you to the right investment plan for your individual situation.
- Input your personal information – name, contact information, social security number, etc.
- Fund your account by transferring funds electronically from an internal Betterment account (or from an external account at another bank).
- Earn 0.30% APY for all balances less than $1 million.
How To Access Your Betterment Account:
Online: Access your account by logging in with your username and password on their website: Betterment.com
Mobile Device: Bank on your phone/tablet through their mobile app.
Contact Betterment About Your Account:
- Call 646-600-8263 with investment questions
- Monday through Friday: 9:00am – 6:00pm EST
- Online Help Request:
- Email Betterment at firstname.lastname@example.org
- Betterment LLC, 8 W. 24th Street, 6th Floor; New York, NY 10010
Cash Reserve is a low-risk investment vehicle that can help your savings grow and retain value.
If you want to invest in the stock market and don’t want to figure it all out yourself, Betterment’s Cash Reserve account may be right for you. Betterment’s robo-advisors will professionally optimize your portfolio to meet your investment goals based on your asset allocation and risk tolerance, in addition to automatically balancing your account to maintain a consistent asset allocation (which can be a huge time saver).
Furthermore, according to consumers, the pros are that Betterment Cash Reserve is easy to use, is reasonably priced, has a solid selection of portfolio options and helps to reduce tax impact on your money.
Additionally, according to consumers the downsides of the Betterment Cash Reserve account are that sometimes that automatic features can get in the way if you want to try to manage some of the account options yourself, you can only invest in certain types of ETFs, there is no FDIC-insurance on the Cash Reserve account, and that their “non-robot” guided advice can get expensive.