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Betterment's cash analysis analyzes the timing and amount of money flowing out of the checking account you’ve linked to your Betterment account.

We then identify whether you have extra cash in your linked bank account that might earn a higher yield in a different account, such as Betterment Everyday™ Cash Reserve.

Most American adults face some sort of cash management problem. Maybe you face a tight budget and need to control expenses; or maybe you have extra income and want to know the best use for that cash; or perhaps your income fluctuates from month to month and you’re looking to maintain a relatively constant amount of cash in your checking account.

As a financial advisor, Betterment aims to help people better understand their cash flows to make more effective decisions for their money. It’s part of our core philosophy: Every person should have a personalized financial plan, and to get there, you often need a more solid understanding of your day-to-day money needs.

At a high level, we offer two things to help Betterment customers manage their cash.

  1. We analyze the timing and amount of money flowing out of the checking account you’ve linked to your Betterment account.
  2. We identify whether you have extra cash in your linked bank account that might earn a higher yield in a different account, such as Betterment Everyday™ Cash Reserve.

In this methodology, we’ll describe our process for analyzing how money flows out of your checking account, and how we arrive at our recommendation on whether you have any extra cash in your account.

How We Analyze Your Checking Account

At Betterment, we allow you to link one checking account to deposit and withdraw money from your Betterment accounts for several reasons. For starters, it helps us prevent fraud by giving customers just one door to move money through. It also allows us to start helping you manage your cashflow (without collecting information on all your possible accounts) by analyzing your checking transactions to make a recommendation on how much extra cash you may have.

Betterment only analyzes expenses that are debited from your checking account, so expenses made through a credit card are analyzed as an aggregated credit card expense, not as individual expenses. For those with multiple checking accounts, it’s important to keep in mind that we only analyze the one checking account linked to Betterment.

Predicting Future Expenses Based on Past Expenses

We make a prediction about future expenses by looking at your last year of expenses. To get a better idea of your ongoing expenses, we filter out and remove very large, one-off expenses. We consider expenses to be large or one-off if they are over either the greater of $5,000 or the 99th percentile of all your expenses. If multiple expenses occur on the same day, we’ll add all of those expense totals together as if it was all one expense.

To make the forecast, we averaged the last year of the combined, filtered expenses and scale by the upper and lower bounds of the forecast period (21 days and 35 days).

Our predictions are updated on a regular basis as new expense data is available, which means that you may see them change from day to day.

How We Define Extra Cash in Checking Accounts

To estimate how much extra cash you may be holding in your checking account, we use the expense analysis and prediction process explained above to define a target balance for your checking account in the future. Because the goal of our analysis is to continually give you smart feedback on your balance, the target balance isn’t static advice; it evolves as our prediction about your cash needs evolve.

To arrive at our target balance for determining how much extra cash you have, our technology simultaneously makes two predictions:

  • How much cash we predict you’ll need for the next 21 days (three weeks).
  • How much cash we predict you’ll need for the next 35 days (five weeks).

The difference between the current balance in your checking account and your target balance (the balance we predict you’ll need for the next 35 days) is what we consider extra cash, which we recommend moving to an account where you could generate higher earnings.

If your current balance falls between the 21-day prediction and 35-day prediction, then we provide you with a message to use your own judgment as to whether you have extra cash based on your knowledge of your cashflow expectations. If your balance falls below the 21-day prediction, then we suggest that you may want to check in on your balance to see if you can cover your expenses, given what we know about you. This analysis will be updated regularly, as long as your checking account remains linked to Betterment. So, our advice on your extra cash will refresh regularly. It is important to note that this information is not gathered or adjusted in real time. We aim to provide current checking account balance that is no more than 24 hours old, so you should be aware that deposits and withdrawals won’t be reflected immediately in your cash analysis.

While there are an array of cash savings solutions to choose from, we tie this analysis to Betterment Everyday™ Cash Reserve. It is important to note that we assume a cash solution is the appropriate use for any extra cash in your checking account and do not consider whether that money might better be used for investing, or for another purpose, such as paying down debt.

Evolving How We Help You Manage Cash

As described in this methodology, we aim to provide smart feedback when we think you have extra cash that could be earning you more value if it were in a higher yield cash account. You can think of this methodology as a starting point for helping you manage your cashflow. By adding to our analysis and refining our prediction capabilities, we’re working to help you manage your cash more effectively over time.

Explore your first goal

Cash Reserve

Our high-yield account built to help you earn more on every dollar you save.

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

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