One of the things to clarify about Betterment right up front: it is not a bank. What started as essentially a robo-advisor for investors expanded into offering some cash management accounts. These accounts are offered through partner or affiliate banks. Although Betterment is not a bank, these partnerships mean it can offer bank-like products.
Betterment at a glance
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What we like about it
When it comes to the new Checking and Betterment Cash Reserve accounts, the biggest plus is the lack of fees on either account, and the exceptional interest rate. Its investment features are still some of the best around. Low fees, a low minimum investment, and some great automated tools round out the list of benefits. Betterment has a great RetireGuide feature, and even tax loss harvesting. With some great portfolio options at a low cost, Betterment is a great investment tool.
Things to consider
Betterment’s website offers plenty of promises, but CNBC has reported that there are some regulatory questions about their new account offerings. Some think this may be related to the delayed launch of Checking.
The second downside comes on the investing side. Because the app is so simple, it can seem restrictive. You’ll only get access to certain ETFs, and depending on how you invest, things can get a little pricey. There is also little to no human advising contact until you get into the premium range, which requires that you have over $100,000 under management with them. Otherwise, advice from real humans does not come cheap. Fees can get pricey, especially for high end investors.
Betterment Checking & Cash Reserve accounts
Betterment Checking is totally fee-free checking. ATM fees, no matter where you use the ATM, will be refunded. The account will come with a Visa debit card, and there is no minimum balance. Although you won’t earn interest on your balance, it is easily paired with Betterment’s Cash Reserve account.
Betterment’s Cash Reserve replaces the former Smart Saver accounts and comes with an interest rate of .40% APY. After a $10 minimum deposit to open, there is no minimum balance, there are no program fees.
Betterment money market accounts
Betterment does not offer money market accounts or CDs, as they are not a bank, but an automated investment firm offering ETFs. These funds are made of different investments similar to mutual funds, but the funds themselves are traded on an exchange. Betterment uses algorithms to invest for you based on your needs, goals, and how risk-averse you are. Betterment also offers a few other types of accounts: taxable, joint, trusts, SEP, and traditional and Roth IRAs.
Betterment does not offer certificates of deposit either. These are offered by banks like Chase, Ally, and Capital One 360. All offer them at a variety of terms and rates. The longer the term, the higher the rate in most cases. Also if you choose a longer term CD, a variable rate is usually the best choice. There is usually a fee for early withdrawal from a CD, and there is also usually a minimum opening deposit. Some CDs will allow you to deposit more money over time, which can increase the amount that you earn.
Betterment IRA accounts
Betterment offers both traditional and Roth IRA accounts, and much of the investment process is automated. For instance, let’s say you want to retire in 30 years. Initially, you will set up your portfolio balance, say 70% stocks, 30% bonds. Betterment will automatically rebalance your account every three months based on how both markets are performing.
The same is true for SEP accounts, the kind set up for self-employed individuals. Betterment also offers a Tax Coordinated portfolio, one that moves money between your taxable accounts and your IRA based on achieving the least amount of taxable income. This is because some investments are best left in taxable accounts, since you don’t pay taxes until you withdraw them, and others work better in an IRA.
Betterment credit cards
Since it is very clear from its website and other materials that Betterment is not a bank, but an investment firm, they do not offer credit cards. Rewards cards and those with deals on balance transfers are available from lenders like Capital One, Discover, and Chase. Select a credit card based on what you want to get from it. Some offer travel rewards, usually with an annual fee. There are cards with no annual fee and varying interest rates depending on your credit score. Balance transfers can often be made with 0% interest for a certain period of time. Be sure to shop around for the card that best meets your needs.
Just like their IRA accounts, Betterment investing accounts are largely automated, just what you would expect from a robo-advisor account. There are several flexible portfolios from the Tax Coordinated one described above to Socially Responsible Investing (SRI) portfolios and a Flexible Portfolio which gives you more control over your investments. Two of the best features are its auto-rebalancing feature mentioned above and the tax harvesting feature, which works to automatically offset capital gains. It’s pretty slick, and for beginner investors or those who prefer a more hands off approach, it does a great job.
The bottom line
The new Betterment Checking and Cash Reserve accounts may have a pretty universal appeal, with no fees, as long as you’re fine with online banking and no branches. As for investing, Betterment is great for beginners, with low fees and some great tools. If you’re just starting out, or more of a hands-off type investor, there are some great portfolio options for you.If you’re more of a hands-on investor or are looking for mutual funds, CDs, and other more diversified investments that are not ETFs, you’ll want to look elsewhere. Unless you have a lot to invest, if you want human interaction and an active advisor, Betterment is not the right place for you.