Wealthfront is moving into a new area of banking by now offering what they call the Wealthfront Cash Account. It’s essentially a savings account with an impressive APY.
To compete with large banks and supplement the current services they offer, Wealthfront ventured into this space.
According to a CNBC interview, Wealthfront founder Dan Carroll says they think “the banking industry is the next piece in financial services for targeting innovation,” and that “the best financial decisions can ultimately be on autopilot, and this will be an enormous competitive advantage of us going forward.”
This comes just months after Robinhood said they’d launch a checking and savings account, then had to back-peddle and put the program on hold. They do plan to re-launch soon, and this is a sign that Fintech “non-banks” will take on traditional banks by offering more competitive rates and services.
Related: Wealthfront Review
What is Wealthfront’s Cash Account?
Wealthfront’s Cash Account is a new account offered through Wealthfront that gives you the ability to earn a high interest rate on any cash you don’t have invested within your Wealthfront account. Wealthfront created this account to sock away money you may need later–whether it’s to invest or not.
The account has some nice features, too. Here are the highlights:
- FDIC insured up to $1 million: you can read more on this below, but Wealthfront uses what they call Program Banks to multiply the traditional FDIC insurance you’d typically get.
- No market risk: this money isn’t invested, so it’s not subject to significant fluctuations up or down like you’d see in a stock market.
- Unlimited, free transfers: unlike a standard savings account, you can move money both in and out as much as you’d like with no fees.
- No fees: speaking of fees, there are none with this account. That includes advisory fees and management fees.
- $1 minimum: yep – it only takes $1 (and a Wealthfront investment account) to get rolling with this new account.
- Fast and easy setup: you can actually set up a cash account from your phone in two minutes.
What is the interest rate?
The account pays 2.07% APY, which blows the national average of 0.10% APY out of the water. Interest will accrue daily, and it’s credited to your account monthly–but usually within the first week of the next month. Remember that this interest rate can change as the market fluctuates.
It takes only $1 to open a cash account and get started, and you don’t even need to have a Wealthfront investment account to be eligible.
Are there fees?
There are no fees for the Wealthfront cash account. They charge no advisory, withdrawal, or other fees for this account. The standard Wealthfront investment advisory fee of 0.25% doesn’t apply to the cash account. Note that if you have a fee waiver on your Wealthfront investment accounts, the cash account balance you hold won’t count toward the amount being managed for free.
So you’re probably wondering how Wealthfront makes money. I was too.
Wealthfront does get a small piece of the interest earned on the money sitting in your cash account. That’s typical for banks. But since Wealthfront uses so much automation already, their overhead costs are low and, like their investment platform, they can pass the savings on to their customers.
Is my money protected?
The short answer is yes. But it’s kind of complicated. To give you FDIC insurance, the money that sits in your cash account is automatically moved into what Wealthfront calls “unaffiliated banks” to provide you the standard $250,000 insurance coverage through the FDIC.
But here’s the kicker. Since Wealthfront uses a multitude of affiliated banks, you get FDIC coverage of up to $1 million on your cash deposits in this account.
You don’t do or see anything happening behind the scenes–Wealthfront handles this with what they call Program Banks. You just need to log in and access your money. Wealthfront will move cash between these banks to ensure you’re covered. If you want to learn more about this, just check out the Cash Sweep Program Disclosure Statement. It’s actually common for this to occur.
Moving money around
What’s odd is that you can’t transfer money from your Wealthfront cash account to your Wealthfront investment account. Wealthfront says they’re working on the ability to do internal transfers, but it’s not ready yet. So for now, the cash account and investment account operate like separate entities–which is strange.
For the time being, you must withdraw money back to your checking account and re-deposit that into an investment account. Withdrawing money takes between one and three business days, but what’s nice is there aren’t any restrictions on the number of times you can withdraw per month. This is a significant downside to a traditional savings account, as guidelines prohibit the number of times you can take money out of savings without getting tagged with a fee.
What about taxes?
Like any other savings account, you’ll get a 1099-INT around tax time to make sure you’re paying taxes on the interest you earn with your Wealthfront cash account. You’ll want to talk to a tax professional if you have specific questions on this.
Why wouldn’t I sign up?
The rate is appealing, and it’s making banking even easier for consumers. But you have to consider the data impact. Founder Dan Carroll has been on record saying he wants to create “self-driving money” and the company needs data to do that adequately. Long-term, he wants to fulfill a client’s every financial need.
So by opening a cash account, you’re giving Wealthfront access to more of your personal financial data. Now, this isn’t a bad thing necessarily–all banks capture their customer’s data, but it’s something to think about.
This sounds like an excellent addition to Wealthfront. They’re making strides to become your go-to provider for everything money. Andy Rachleff, CEO of Wealthfront, said “our cash account is another important milestone on our path to deliver our ultimate vision of Self-Driving Money,” and “In order to optimize and automate all of our clients finances we need to offer ideal short and long-term destinations for their cash. You can expect us to further extend our services into the banking sector this year.”
To Sign Up: https://cloud.em.wealthfront.com/cash_signup