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Betterment Everyday™ Cash Reserve Has A Variable APY: What That Means For You

Interest rates change over time, but at Betterment, we are always working hard to help give you one of the best rates possible so you can make the most of your money.

Articles by Adam Grealish

By Adam Grealish
Director of Investing, Betterment  |  Published: October 22, 2019

We’ve built Betterment Everyday™ Cash Reserve to help you make the most of your money.

We work with banks across the U.S. and seek the highest interest rates possible.

Your APY is variable: changes in the Federal Funds Rate will affect the rate we’re able to pass on to you.

Our objectives are aligned with yours: we want to grow your money.

Betterment Everyday™ Cash Reserve is a high-yield account that is different from the savings accounts that you might find at traditional banks. We’re not tied to one specific bank, so we have the opportunity to obtain attractive rates in the marketplace. We use our size and scale to access a network of program banks, and then we use our technology and efficiency to pass rates on directly on 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™ Cash Reserve rate.

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. Click here to see what the current variable interest rate is for Cash Reserve.

How does Betterment get one of the highest possible rates?

Similar to how we aim to select the best ETFs in each asset class for your portfolio, we work with a number of program banks to provide you with one of the best possible rates we can find and then pass them on to you.

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.

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 Cash Reserve 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

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 to pass on to you because of the way our Cash Reserve product is set up.

What will future rates look like?

If the Federal Reserve lowers its target range, the interest rate on Betterment Everyday™ Cash Reserve will generally change by a similar amount. You can expect this to impact rates at other banks as well.

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

Potential Future Rates With Forecasted Interest Rate Changes

Source data: Federal Reserve and FDIC. 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 10/10/2019. This chart is hypothetical in nature and based on forecasts. Actual interest earned may differ.

As you can see in the hypothetical chart above, the announcement of a rate change by the Federal Reserve would cause changes in the interest rate environment. Because Cash Reserve tracks closely with the Federal Funds Rate, you can expect that, in the future, our Cash Reserve rate will continue to track alongside the Federal Funds Rate as it changes.

We Do What We Believe Is Best For You

As your advisor and as a smart money manager, it’s in our DNA to do what we believe is best for you. We’ve spent the past decade working to optimize your investments and provide you with advice that helps you reach your long-term financial goals, and we are excited to partner with you to make the most of your money with our newest cash management solution—Betterment Everyday™.


Betterment Everyday Cash Reserve

Betterment Everyday Cash Reserve (“Cash Reserve”) is offered by Betterment LLC. Clients of Betterment LLC may participate in Cash Reserve through their brokerage account held at Betterment Securities. Neither Betterment LLC nor any of its affiliates is a bank. Through Cash Reserve, 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.  Cash Reserve provides Betterment clients with the opportunity to earn interest on cash intended to purchase securities with through Betterment LLC and Betterment Securities.  Cash Reserve should not be viewed as a long-term investment option.

Funds held in your brokerage account are not FDIC-insured but are protected by SIPC. Funds in transit to or from Program Banks are generally not FDIC-insured but are protected by SIPC, except when those funds are held in a sweep account following a deposit or prior to a withdrawal, at which time funds are eligible for FDIC insurance but are not protected by SIPC. See Betterment Client Agreements for further details.  Funds deposited into Cash Reserve are eligible for up to $1,000,000.00 of FDIC insurance once the funds reach one or more Program Banks (up to $250,000 each at  up to four Program Banks). Even if there are more than four Program Banks, Clients will not necessarily have deposits allocated in a manner that will provide FDIC insurance above $1,000,000. The FDIC calculates the insurance limits based on all accounts held in the same insurable capacity at a bank, not just cash in Cash Reserve. If clients elect to exclude one or more Program Banks from receiving deposits the amount of FDIC insurance available through Cash Reserve may be lower. Clients are responsible for monitoring their total assets at each Program Bank, including existing deposits held at Program Banks outside of Cash Reserve, to ensure FDIC insurance limits are not exceeded, which could result in some funds being uninsured.  For more information on FDIC insurance please visit www.FDIC.gov. Deposits held in Program Banks are not protected by SIPC. For more information see the full terms and conditions and Betterment LLC’s Form ADV Part II.

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