The battle for deposits by financial institutions and fintech companies continues to heat up, and it bodes well for your wallet.
On Tuesday, Wealthfront announced that it increased the rate on its online-only cash account to 2.51 percent APY — making it the top-yielding account nationwide, per Bankrate data. The rate also blows past the national average savings account rate of 0.1 percent.
It marks the second time the fintech company has raised the rate on a product it launched in mid-February. Most recently, Wealthfront was offering a 2.29 percent yield.
There is a lot to like about the Wealthfront Cash Account, which you can open with as little as a dollar. As a customer, you will also have unlimited free transfers to move money in and out of your account, and impressively, there are no fees. You will get free access to Path, its robo-planning software. If you open the account, you will also get up to $1 million in FDIC insurance.
Importantly, Wealthfront isn’t offering a basic savings account — it is not a bank. Rather, Wealthfront is offering a cash management account, which sweeps your deposits into FDIC member institutions. But again, the Wealthfront Cash Account is a fully insured place to park your money. Other fintech firms, like Aspiration, use this model, too.
The signup process ought to happen quickly. On its website, Wealthfront says it takes only a couple of minutes to set up an account, putting it in the group of institutions and fintech firms that have found ways to help you open an account in minutes.
Why Wealthfront is raising the account rate again
Weathfront is raising the rate on its cash account again for a simple reason: to grab your cash deposits at a time when you have ever-more options and rate is relevant again.
Because the company doesn’t operate branches, it can afford to pass on a higher rate to you. As Wealthfront wrote in a blog post announcing the news: “We fundamentally believe that your money should be making money for you, not your bank, and we’ve built our entire business around this belief. As our service scales, we benefit from cost savings that we’ll always pass on to you. When rates improve, that’s yours too.”
What this means for you
A higher rate is good for your bottom line, and there is a reasonable chance you are overdue to open a new account at a time when rates are higher. Almost seven in 10 Americans (69 percent) have bank accounts paying less than 2 percent APY, according to a recent Bankrate study.
If you are looking for a new account for your short-term needs, Wealthfront is a good option to consider. But shop around because rates change regularly. Already, you can find a number of banks and fintech companies offering tempting yields on savings accounts and money market accounts. For example, WebBank offers 2.5 percent APY on a savings account, as does Customers Bank. If you don’t need easy access to your funds, you can earn higher rates on certificates of deposits. Capital One, for example, currently pays 2.7 percent APY on a one-year CD.
You can compare savings accounts on Bankrate to find a high-yield account that fits your needs.
Also, keep in mind that the Wealthfront cash account is still very young. If you open an account, you will have to wait on features, like a debit card, direct deposit and auto bill pay — all of which the company says is in its pipeline.