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Video: How Does Betterment Move My Money?

We explain how long it usually takes for all the money movements happening in your Betterment account to fully complete.

Articles by Dan Egan
By Dan Egan Managing Director of Behavioral Finance & Investing, Betterment Published May. 06, 2020
Published May. 06, 2020
5 min read

If you’re looking for more guidance, we’ve got you covered with our guide to stock market volatility.

Get that $ moving

Transcript

“Hey everybody. Dan Egan from the Advice and Investing Team at Betterment here. Today I want to talk to you about money movement at Betterment.

That includes putting money into Betterment, depositing from a funding account like your checking account, transactions inside of Betterment (things like allocation changes, rebalancing, tax loss harvesting, as well as goal-to-goal transfers), and finally, withdrawals—taking money out of Betterment and moving it to another account.

I’m going to focus for the most part on those movements for taxable investment accounts. So, not Cash Reserve accounts, and while some of it’s related to the same things for IRAs, not focused on IRAs specifically, because they have things like rollovers that are subject to slightly different regulations.

I’m going to start at the beginning with a deposit. Most deposits are done with something called an ACH transfer. You might not know about this but a lot of the financial plumbing rests on the ACH network, which stands for Automated Clearing House.

In effect what happens is that Betterment says, “hey, we’d like to process this auto-deposit from this checking account, can you please send it this way?” It goes through the ACH system to send that money to Betterment. Generally it will take about 1 or 2 days to move that money to your account at Betterment. Most of that time, the money is likely spent sitting in your checking account while we wait for markets to open so that we can actually invest it.

For clarity, there are some fraud and consumer protections in place for specifically these kinds of transactions, and they can create friction and delays in the process where we have to double-check things and make sure that there isn’t any fraud or risk taking place. We don’t want anybody stealing your money or committing fraud against us. When certain circumstances or events dictate caution, we tend to do it, and things might take a little bit longer while we run those checks.

What happens, well, once we have the money we have to invest it. And, here’s where things might be a little bit different from what you’re used to. Betterment invests in exchange-traded securities, so in order to buy or sell anything, we need the exchanges to actually be open. We need there to be other buyers on the other side of things.

Generally speaking, exchanges are open from 9:30 AM until 4 PM, Monday through Friday. That excludes things like holidays where they’re going to be closed. These are exchanges where basically buyers and sellers come together to figure out how to trade.

In the beginning and end of every trading day, they’re trying to figure out exactly how the prices are going to open and close. There’s a set of prospective buyers and prospective sellers. Both of them are trying to figure out, what’s the fair price for the security?

During the first half hour and the last half hour of the day, the spread between those two things and how quickly it moves around tends to be a bit higher. So, Betterment tends to not automatically trade during the first half hour and the last half hour of the day.

We also do not want to be responsible for any price dislocations or stress ourselves, so we’re actually very careful about spreading out our trades throughout the course of the day. That means that you might not see a purchase or a sale of a security until later in the day, even if you deposited before. We want to make sure that we are not causing an imbalance in markets with how many trades we go out looking to do.

The same goes for sales. We don’t necessarily sell immediately, but we wait until it looks like there’s not a lot of price pressure on whatever we’re trying to sell. Looking, in effect, if we’re buying—then at how many potential people there are who are selling that. If we’re selling—how many potential buyers there are.

Same thing goes roughly for allocation changes, rebalances, and goal-to-goal transfers. Now, in this case, money isn’t moving out of the goal or out of the legal account at all, it’s just getting transferred into different securities within it.

These are all exchange-traded investments, that means we are just going out to the exchange, looking to get a good price, a fair price at prevailing rates. As long as the exchange is currently open and the bid-ask spread is low, we can do these transactions quickly. Generally, quicker than a deposit or a withdrawal.

As with anything else, we’re going to be careful to not come in and swamp the market with buy orders or sell orders, so allocation changes and rebalances are likewise spaced out through the course of the day. In almost any case, you’ll have those transactions done in the same day, it just might be later than you would have expected.

Finally, and I think we’ve covered a lot of the core aspects of this now, is withdrawals. For a withdrawal, we’re going to show you the balance that we have data on. Now that data, if markets have been closed and we don’t have any current data, might be from Friday afternoon. You might come in and see $100 in your account and think great, I want to withdraw $100. But, until markets open, and we know what the actual prices that we can transact on are, we can’t guarantee anything.

Come Monday morning, at about 10 AM once the market has stabilized and we know we aren’t going to pay too much in a bid-ask spread, we can go out and try to sell the securities that you have on the open exchange to other people. Once we have buyers, we take the cash and they take your securities.

Generally speaking, there is about a 2 day lag for something called settlement, where we make sure that all boxes are ticked, that the securities were transferred correctly, etc. Once we have the cash, and the settlement has occurred, we then initiate an ACH transfer back out to you, heading to your checking or funding account—whatever it is.

That’s generally why withdrawals can take up to 4 to 5 days because of the settlement plus the ACH transfer time, as well as, we have to wait until we can get a good price in markets in order to sell your securities to get the cash from someone else.”

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