What Betterment's savings account offers, and what it doesn't

Betterment is not a high-yield savings account at all—it's an investment platform that holds a cash management account as one of its products. The cash portion earns interest, but Betterment makes its money by charging you a fee to invest the rest of your money in stocks and bonds, not by offering you the best savings rate.

If you open a Betterment account, you get access to their cash management feature, which sweeps uninvested money into partner banks that are FDIC-insured. The interest rate on that cash changes based on what partner banks are offering at any given time. Right now, rates on cash management accounts across the industry sit between 4% and 5% APY, but Betterment's rate is not always the highest available, and it moves when their partner banks change their rates.

The real cost of using Betterment for savings is the investment fee: 0.25% per year on assets under management if you have less than $100,000, or 0.20% if you have more. That fee applies to your entire account balance, including the cash sitting in the cash management feature. If you're using Betterment only as a savings account and not investing through them, you're paying that fee for nothing.

Key Takeaways

  • Betterment charges a 0.25% annual fee on all money in your account, including cash, which makes it expensive compared to standalone high-yield savings accounts that charge nothing.
  • The interest rate on Betterment's cash management feature is set by their partner banks and is not always competitive with dedicated high-yield savings accounts.
  • If you want only a savings account, you will pay Betterment's investment fee for a service you are not using.
  • Betterment makes sense only if you are also investing money through their platform and want to keep some cash on the side.

How Betterment's cash management actually works

When you deposit money into Betterment, you can choose to keep it in their cash management account or invest it. Money in the cash management account sits in FDIC-insured accounts at partner banks—currently Ally Bank and other institutions. Betterment does not hold the money itself; it passes it through to these banks, which is why your deposits are protected up to $250,000 per bank partner.

The interest rate you earn depends on what those partner banks are paying. Betterment does not set the rate; they pass through whatever their partners offer. This means the rate can change without warning, and it may lag behind what other banks are offering. You have no control over which partner bank holds your money or how the rate is set.

Every dollar in your Betterment account—whether it's sitting in cash or invested—gets charged the 0.25% annual management fee. That fee is deducted from your account automatically. If you have $10,000 in cash earning 4.5% APY, you earn $450 in interest but pay $25 in fees, leaving you with $425 in actual gain.

Comparing Betterment to dedicated high-yield savings accounts

A dedicated high-yield savings account from a bank like Marcus, Ally, or American Express Personal Savings charges no annual fee and typically offers rates in the same range as Betterment's cash management account—currently between 4% and 5% APY. The difference is that you pay nothing for the account itself.

If you have $10,000 in a no-fee high-yield savings account earning 4.5% APY, you keep the full $450 in interest. With Betterment, you keep $425 after the fee. Over a year, that's a $25 difference on $10,000. Over five years on a larger balance, the fee compounds and becomes harder to ignore.

The only scenario where Betterment's fee makes sense is if you are actively investing money through their platform and using the cash management account as a place to park money between investments or hold an emergency fund. In that case, you're paying one fee for two services. If you're using Betterment only as a savings account, you're paying for investment management you don't want.

When Betterment might actually be worth it

Betterment works best for people who want to invest in a diversified portfolio of stocks and bonds with automatic rebalancing, and who also want a place to keep some cash without opening a separate account at another bank. If you have $50,000 to invest and want to keep $5,000 in cash for emergencies, Betterment lets you do that in one place with one login.

The 0.25% fee is lower than what many traditional financial advisors charge (typically 0.5% to 1%), and Betterment's investment approach—target-date funds and tax-loss harvesting—is solid for hands-off investors. But that value proposition only works if you are actually investing. If you're only saving, you're paying for features you won't use.

Betterment also offers a checking account feature in some cases, which can be useful if you want to consolidate banking and investing in one place. But again, that's a feature for people who are using Betterment as a full financial platform, not just as a savings account.

The fee math: what it costs you over time

The 0.25% annual fee on Betterment is small in absolute terms but adds up. On a $10,000 balance, it's $25 per year. On $50,000, it's $125 per year. On $100,000, it drops to $20 per year (0.20% fee), or $200 total.

That fee is deducted from your account balance, which means it also reduces the amount earning interest the next year. Over a decade, the compounding effect of that fee can cost you hundreds of dollars compared to a no-fee account earning the same interest rate.

If you're comparing Betterment to a high-yield savings account at Marcus or Ally, and both are offering 4.5% APY, the high-yield savings account will always win on pure savings. The only reason to choose Betterment is if you're also investing money there and want the convenience of one account.

What to do if you're only looking for a savings account

If your goal is to save money and earn interest, open a high-yield savings account at a bank that charges no fees. Marcus, Ally, American Express Personal Savings, and Wealthfront Cash Account all offer competitive rates with zero annual fees. You can open one in minutes online, and your money is FDIC-insured just like it would be at Betterment.

These accounts are designed specifically for saving, not investing. You won't have access to stock and bond investments, but you also won't pay for the option to invest. The interest rate will move with the market, just like Betterment's does, but you'll keep every penny of interest you earn.

If you later decide you want to invest, you can open a separate brokerage account or investment platform. Keeping your savings and investments separate is actually cleaner for tax purposes and makes it easier to track what money is for what goal.

Frequently Asked Questions

Does Betterment's cash management account have FDIC insurance?

Yes. Betterment's cash sits in FDIC-insured accounts at partner banks. Your deposits are protected up to $250,000 per bank partner. If Betterment holds your money at two different partner banks, you get $250,000 protection at each one.

Can I withdraw money from Betterment's cash management account anytime?

Yes. Money in the cash management account is liquid and can be withdrawn to your linked bank account, usually within one to three business days. There are no withdrawal limits or penalties. Betterment does not lock your money in.

What happens to my interest rate if the Federal Reserve changes rates?

Betterment's rate will eventually move, but there is a lag. When the Fed changes rates, banks adjust their rates over days or weeks. Betterment's rate follows their partner banks' rates, so you may see a delay before your rate changes. Dedicated high-yield savings accounts typically move faster.

Is Betterment's 0.25% fee worth it if I'm also investing?

It depends on how much you're investing and what you're comparing it to. If you're investing $50,000 or more, the 0.25% fee is lower than a traditional financial advisor would charge. But it's higher than what you'd pay at a discount brokerage like Fidelity or Vanguard, which charge nothing for basic investing. Betterment's value is in the automated rebalancing and simplicity, not the fee itself.

Can I move money out of Betterment to a high-yield savings account later?

Yes. You can withdraw your cash anytime and move it to another bank. If you have investments in Betterment, you can sell them and withdraw the proceeds, though you may owe capital gains tax on any profit. There are no penalties for closing your account.