Betterment Everyday Savings is different from the savings accounts that you might find at traditional banks. Banks typically set rates based on loan demand. If they have significant loan demand, they will pay more for deposits into their bank. The national average savings rate is 0.09% APY**.
We do it differently. We’re not tied to one specific bank, so we have the opportunity to obtain attractive rates in the marketplace. We use our technology and size to efficiently access competitive bank rates—rates you might not have access to as an individual depositor—and we pass on the rates directly to you.
Is that rate guaranteed? No, it’s variable, and that’s by design. The Federal Funds Rate influences interest rates across all banks. As rates change, so will the Betterment Everyday Savings rate.
As of 7/10/19, the rate on Savings was 2.43% APY*, and the rate for those who joined our Betterment Everyday Checking waitlist was 2.69% APY. Note that both of these rates will change due to the variability of interest rates.
You can feel confident that Betterment is always working to offer you one of the best interest rates we can find, no matter what the current rate environment may be.
How does Betterment get the best possible rates?
Often, these rates are more competitive than what you could get as an individual depositor. When you deposit with Betterment, you become part of a larger community of savers. Banks can more efficiently support our customer base as a group, rather than as individuals.
The overall size of deposits that come from Savings is attractive to banks. They are willing to offer better rates than they might offer to individual depositors as a consequence, and we pass those benefits on to you.
What causes interest rates to change?
No matter where you bank, the prevailing interest rate environment will have an impact on your interest rate.
Interest paid by banks is heavily influenced by the Federal Reserve, which sets the rate at which banks can loan money to each other. This is known as the Federal Funds Rate. It’s the rising tide that raises all rates, and the receding tide that can also bring them all down.
The Federal Reserve sets a target range for the Federal Funds Rate, rather than aiming for a specific number. Because of this, the Federal Funds Rate can change by a small amount from day to day. That means that your interest can also vary by a small amount every day—think 0.01% to 0.03%—as we experience those changes.
Larger changes to the Federal Funds Rate can occur when the Federal Reserve changes its target range. Likewise, when the Federal Reserve changes policies, the Federal Funds Rate will adjust. Your Savings interest rate will fluctuate in response, although it might take a week or more for the changes to be reflected in the rate you receive.
How do interest rate changes affect me?
Let’s take a look at just how the Federal Funds Rate affects rates at traditional banks. The chart below shows the relationship between what happens to the rates at traditional banks when the Federal Funds Rate goes up or down.
Historical Comparison of the Federal Funds Rate and the Average Bank Rate
This chart shows the historical Federal Funds Rate in comparison to the historical national average savings rate. Source data: Federal Reserve and FDIC.
The average rate at banks has been nearly flat throughout the period shown above. The wide spread between the two lines on the graph represents the additional amount of interest we’re able pass on to you because of the way our Savings product is set up. Hypothetically, if our Savings product had been around during the time frame shown on the graph, it would have tracked closely with the Federal Funds Rate.
What will future rates look like?
We expect the Federal Funds Rate to drop in the near future. The Federal Reserve has its next policy meeting tomorrow, and it’s expected that they will announce a rate drop.
If the Federal Reserve lowers its target range, the interest rate on Betterment Everyday Savings will generally change by a similar amount. You can expect this to impact rates at other banks as well. In fact, some banks have already been lowering their rates in anticipation.
Below, we’ve extended the previous comparison chart to include a forecast for how the Federal Funds Rate might change in the future.
Potential Future Rates With Forecasted Interest Rate Changes
This chart shows the hypothetical future Federal Funds Rate in comparison to the hypothetical future national average savings rate, based on one possible path of future changes in the Federal Funds Rate. The forecasted Federal Funds Rate is based on yield curve data as of 7/26/2019. This chart is hypothetical in nature and based on forecasts. Actual interest earned may differ. Source data: Federal Reserve and FDIC.
As you can see in the hypothetical chart above, the announcement of a rate change by the Federal Reserve will cause changes in the interest rate environment. Because Savings tracks closely with the Federal Funds Rate, you can expect that, in the future, our Savings rate will continue to track alongside the Federal Funds Rate as it goes down.
The structure of Betterment Everyday Savings is aligned with our customers’ interests to keep our rate highly competitive—even as interest rates decline overall.
We Do What’s Best For You
As your advisor and as a smart money manager, it’s in our DNA to do what’s best for you. We’ve spent the past decade doing what’s best for your investments, and we are excited to partner with you to make the most of your savings.
*The Betterment Everyday Savings (“Savings”) annual percentage yield (“APY”) is based on commitments from program banks if the program was available as of 7/10/2019. 2.69% APY is a promotional offer for individuals who sign up for the Betterment Everyday Checking waitlist and applies to cash deposited into Savings for the duration of 2019. APY is 2.43% as of 7/10/2019 without the promotional offer. APY is a variable rate and may change at any time. Current APY can be found here. No minimum balance is required. There is a minimum deposit of $10.
Betterment LLC clients may choose to participate in Betterment Everyday Savings (“Savings”), through which clients’ funds are deposited into one or more banks (“Program Banks”) where the funds earn a variable interest rate and are eligible for FDIC insurance. FDIC insurance is not available until deposits are received by the Program Banks. There are currently at least four Program Banks, which allows funds deposited into Savings to be eligible for up to $1,000,000 of FDIC insurance (up to $250,000 at each program bank). Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Savings, to ensure FDIC limits are not exceeded, which could result in some funds being uninsured. The FDIC calculates the limits based on all the accounts held at a bank, not just cash in Savings. If you elect to exclude one or more Program Banks the amount of FDIC insurance available to you through Savings may be lower. For more information on FDIC insurance please visit www.FDIC.gov. The deposits in Savings are not covered by SIPC. See Program Terms and Conditions for additional information.
**National average savings account is calculated by taking the FDIC’s national average savings account interest rate for deposits under $100,000 of 0.09% (as of 7/29/2019).