Wealthfront is moving into a new area of banking by now offering what they call the Wealthfront Cash Account–essentially a hybrid checking and savings account.
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 Wealthfronts Cash Account?
Wealthfronts Cash Account is a new account offered through Wealthfront that gives you the ability to earn 4.30% APY 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 $5 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 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.
- Checking features: you’ll have access to a debit card for purchases, plus the ability to pay bills, direct deposit your check (and get it up to two days early), pay others, deposit paper checks, and more.
- Self-Driving Money: Put your savings plan on autopilot. You tell Wealthfront what you’re saving for and how much you want to save, and they’ll automate the rest.
- Organize your cash: Create buckets for your savings goals, like an emergency fund, down payment on a home, or a large purchase.
More on the Checking Features
In addition, the checking features allow you to pay others using apps like Venmo, PayPal, and Cash App, make purchases with Google Pay and Apple Pay, and deposit paper checks using the mobile app. So for all intents and purposes, it functions as a checking account–only with a much higher APY.
Wealthfront Cash now gives you the ability to set up a direct deposit into your Cash account and get paid up to two days earlier. On top of that, you’re now able to immediately invest in the market, using funds from your Wealthfront Cash account. Not only does this make things easier, but it also gives you more investing days out of the year (if you’re getting paid early).
Wealthfront offers a suite of cash-management tools that it calls Self-Driving Money. The idea is that customers who use Wealthfront Cash won’t have to worry about the day-to-day management of their money. Instead, Wealthfront can handle the little stuff like making sure you have enough money to pay the bills.
With Self-Driving Money, you set basic savings and investing goals. You might tell Wealthfront that you want to save $50,000 for a down payment on a home, $3,000 for a vacation, and invest for retirement.
Wealthfront automatically monitors your cash flows and will distribute your income among your various goals automatically, always making sure you have enough cash on-hand to spend on essentials.
What is the Interest Rate?
The account pays 0.10% APY, which is pretty good considering it’s also a checking account. 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 $5 million on your cash deposits in this account or up to $10 million for joint accounts.
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
Moving money around is easy! Wealthfront now allows you to transfer money from your cash account to your Wealthfront investment account.
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 Wouldnt 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.
Learn More: Related: Best Cash Management Accounts
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.”
DoughRoller receives cash compensation from Wealthfront Advisers LLC (“Wealthfront Advisers”) for each new client that applies for a Wealthfront Automated Investing Account through our links. This creates an incentive that results in a material conflict of interest. DoughRoller is not a Wealthfront Advisers client, and this is a paid endorsement. More information is available via our links to Wealthfront Advisers.