Courtesy of Wealthfront

At a time when many brick-and-mortar banks continue to offer puny returns on deposits, the Wealthfront cash account yield keeps rising.

Today, Wealthfront raised its cash account yield six basis points to 2.57 percent APY. Just last month it boosted its annual percentage yield (APY) on the account to 2.51 percent. Back in March, Wealthfront was only offering 2.24 percent APY on this account.

Keep in mind, however, that the Wealthfront Brokerage account works a little differently than a traditional bank’s savings or money market account.

Account details

Wealthfront isn’t a Federal Deposit Insurance Corp. (FDIC) bank. But it does work with participant banks. Once your funds are deposited into a Wealthfront cash account, they are swept to a participant bank, and then the funds are eligible for FDIC insurance, according to Wealthfront.

East West Bank, Associated Bank, TriState Capital Bank and Citibank N.A. are Wealthfront’s program banks.

It’s important to note that your money is automatically swept into one of the participating bank accounts within one to three business days after Wealthfront receives your cash.

It’s also important to know which participant bank your money is being swept to, especially if you’re in danger of exceeding FDIC limits at a bank due to your funds with Wealthfront and an account that you might already have, or may open in the future, with one of the program banks.

Wealthfront notes that its cash account is intended for short-term use and shouldn’t be viewed as a long-term investment option. Wealthfront defines short-term savings as money you’ll need within five years.

The participating FDIC banks are how Wealthfront combines the insurance limits to offer up to $1 million worth of FDIC coverage. But until the sweep to an FDIC-participant bank, your Wealthfront cash account balance remains uninvested and customers are protected up to applicable SIPC limits if Wealthfront Brokerage were to go out of business and “and there were customer securities or funds unaccounted for,” according to Wealthfront’s Cash Sweep Program Disclosure Statement.

Unlike a traditional bank savings account or money market account, the Wealthfront cash account isn’t subject to the same restrictions on transfers per statement cycle, according to the company. The account doesn’t have a debit card or checks available at this time. Some bank or credit union savings accounts and money market accounts have an ATM card or debit card for ATM access. ATM withdrawals are generally unlimited on those savings deposit accounts.

Why Wealthfront is raising its APY again

Other banks, including Vio Bank (2.52 percent APY) and Salem Five Direct (2.51 percent APY), have also started offering accounts with yields above 2.5 percent APY in the past month or so. Both Vio Bank and Salem Five Direct have these yields on FDIC-insured savings accounts.

Wealthfront is making an effort to have one of the top APYs around.

“We have been overwhelmed by the response to the launch of our high-interest cash account and we want to make choosing our cash account a no-brainer and eliminate the need to comparison shop,” according to its statement.

What this means for you

More options are a good thing for savers, especially when the savings account national average yield is .1 percent APY. Just remember that this is similar to an FDIC-insured account, since your funds are being swept to an FDIC participant bank. But this isn’t the same as a savings account or money market account at a single FDIC-insured institution.

Make sure that you understand how the Wealthfront cash account is protected and that FDIC insurance isn’t provided until the funds actually arrive at one of the program banks. Be sure to contact Wealthfront Brokerage if you have any questions related to the way your money is being insured before making a deposit.

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